5 Benefits of Paying Off
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When you set up your plans for retirement, the money will be there when you need it, right? Unfortunately, there are no guarantees when it comes to that nest egg you've worked so hard to build. People experience job changes, company closures and other job alterations. These developments – often unexpected – can greatly influence retirement plans and pensions. Your retirement savings can also be impacted by budget legislation if you work in a job with a government pension. The authors at Equifax, lay out a few situations for you to consider as you think about this time.

Changing jobs

If you leave one job for another, you may be able to take some or all your retirement savings from your former employer with you, depending on the fine details of the plan you had.

If you had a 401(k) account, your contributions to the plan go with you when you leave the job and, depending on your former company's plan, can be rolled over into a new 401(k) or IRA. If your employer offered matching funds, you may or may not be able to take that money with you, depending on the company's policy and how long you worked there. After a certain amount of time, the matching funds become fully “vested,” meaning they are 100 percent your funds. Your employer’s human resources can help answer your questions.

Employer changes to existing plans

If your employer switches plans or makes other big changes to your existing retirement benefits, the plan's administrator is required to notify you within 210 days of the end of the year in which a change was made. You will be sent what's called a Summary of Material Modifications (SMM), which is a document explaining the changes and how they will impact your plan and your savings. It might not be the most exciting reading material, but be sure to carefully review it in its entirety. If you don't understand any part of the SMM, contact your plan administrator or your company's human resources department.

Company merger or plan termination

When companies merge or go out of business, they're still obligated to pay the benefits they promised to their employees. In the event of a merger, your plan may be combined with the acquiring company's plan, or the merger parties may decide to terminate one retirement plan and put all employees into the other company's plan. If that happens, you should still be able to keep the money you have already saved.

Employers are required to keep employee retirement funds separate from the company's money, which protects your account if the company goes bankrupt.

Pension freezes

If you work for an employer that offers a pension, you may have heard of the term “pension freeze.” A pension freeze means that employees cease earning pension benefits at the time the freeze goes into effect. Companies are permitted to change, freeze or eliminate their employee pensions for a number of reasons, as long as the employees can still get their earned benefits.

Depending on the type, a pension freeze could affect you
in three different ways:

  • Prevent you from earning further benefits under the plan
  • Stop your benefits from growing
  • Stop you from earning pension credit for future years of work, though your benefits would be calculated based on your pay when you exit, rather than your pay at the time the plan was frozen

If a pension freeze goes into effect after you've already retired, you shouldn't see any changes to your benefits. You've earned them, so the company is required to pay them.

If you're still employed with the company when a freeze goes into effect, you'll keep the benefits you've already earned, but you won't be able to earn any more until the freeze is lifted.

If your employer's pension plan runs out of money to pay the benefits you've earned, you may be protected by the Pension Benefit Guaranty Corporation, an independent agency of the federal government that pays benefits to former employees of companies whose pension plans failed.

Important to keep in mind that it's usually not a good strategy to put all of your retirement eggs in one basket. A solid portfolio generally involves a combination of your employer's retirement plan, your personal savings and investments, along with Social Security benefits (if you qualify).

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