As employers continue to cut future pension benefits for their employees, in an Oct. 20 , the Washington Post asked Professor Norman P. Stein what options, if any, employees have to protect retirement funds.
A cash-balance plan, where an employer sets credit aside and pays a promised conservative interest rate, is one low-risk option an employee can turn to after his or her employer freezes a pension plan, Stein said. However, with these plans employers are not required to pay above the agreed upon interest, even if the market yields a higher return, he added. On the other hand, upon retirement, employees have the option to take a cash-balance plan as a lump-sum payment or reinvest it, Stein said. Therefore, employees are advised to consult a financial planner on how best to convert a cash-balance plan.
Norman Stein is a nationally recognized authority on pension law, employee benefits and tax law.