Kimmunications Blog
« Using Options To Manage Risk | Main | Happy Birthday Blog »
September 07, 2006
Are You Relying On A Pension?
DuPont and Tenneco continue the long line of companies who are shuttering or altering healthy pension plans in order to avoid the obligations and risks of defined benefits to retirees. DuPont will reduce benefits of current workers to 1/3 their current levels. New employees are not eligible for pension. Tenneco has frozen their plan for non-union workers effective January 1, 2007. Both companies will offer employees 401(k)s with a company match instead.
This is a continuation of a trend that has been accelerating. Verizon froze its plan in June and IBM will be freezing its plan effective January 1. Freezing means employees receive no further benefits but they do not lose benefits that are vested.
Why would a healthy company shutter a healthy pension plan? DuPont estimates that the changes will improve earnings by about 3 cents per share in 2007 and 5 cents per share beginning in 2008. Wall Street's response? DuPont shares rose on the news. Tenneco says their move will contribute as much as $7 million to fourth-quarter earnings and $11 million a year before taxes starting next year.
The bottom line is pension cuts increase corporate profits because they reduce the obligations companies carry on their books for future pension payments. Reducing the liability creates a gain, which is recognized either immediately or over time, depending on its structure.
Time and time again, I talk to people who are not saving money for retirement because they believe they work for a company with a healthy pension plan. In my view, you just can't count on that. Look at the Delta Airlines employees who thought they had a healthy retirement just ten years ago and now have to live on 60% less than they were promised.
If September 11th taught us anything it is that our world can change in a matter of seconds. Depending on someone or something else for your standard of living thirty years into the future just makes no sense to me at all. That includes pensions, Social Security, Medicare and inheritances.
If you are not prodigiously saving for retirement, in vehicles that are totally within your control, you are begging to live out the end of your life at the mercy of others.
Have you lost a pension or other retirement benefits unexpectedly at the last minute? It happens. How did that effect you? What did you do to make up the shortfall? Help others learn from your experience. Share your story with others below.
SOURCES:
1. Theo Francis "DuPont Aims To Slash Pension Plan"; Wall Street Journal; 28 August 2006; p A2
http://online.wsj.com/article/SB115677667042447307.html
2. "DuPont To End Pension For New Hires"; MSNBC; 28 August 2006
http://www.msnbc.msn.com/id/14559723/>
Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.
TrackBack
TrackBack URL for this entry:
https://www.typepad.com/services/trackback/6a00d8341d248853ef00d834b1068f53ef
Listed below are links to weblogs that reference Are You Relying On A Pension?:
Comments
The comments to this entry are closed.
Focus of This Blog
Kim Snider is an author, speaker and host of Financial Success Coaching, Saturdays at noon, on KRLD Newsradio 1080, Dallas - Fort Worth. This blog is primarily devoted to empowering individual investors with information to help them be good stewards of their money. Above all, it is about achieving true financial success. Kim's book, How To Be the Family CFO: Four Simple Steps to Put Your Financial House in Order is in bookstores now. Order yours from Amazon or other fine booksellers today.
Please note: Due to the high volume of Spam in our comments, the comments function has been disabled.
Get Email Updates
Add your email address and you will be emailed every time a new post is added to this blog. As always, you have my solemn promise that I will never, ever share your email address with anyone.