Retirement Planning Gets Tough for Some Workers

As if retirement planning wasn’t challenging enough, employees of at least two big companies are facing difficult news this holiday season.

Workers at Hostess are wondering how they’ll make do without the full pensions they’d counted on in retirement since the company underfunded its employees’ pension plan by at least $55 million. (Some reports put that amount as high as $2 billion.)

The makers of Twinkies used that money to keep the business operating. But after a labor dispute, Hostess announced in November it was shutting down operations.

Meanwhile, the Pension Benefit Guaranty Corporation (PBGC), which guarantees traditional pensions when companies underfund their plans and go belly up, isn’t exactly flush. It has a deficit of $34 billion.

Some economists say that if more companies toss their pension liabilities onto the PBGC, the agency could require a taxpayer bailout to continue to pay workers’ benefits. As it is, the PBGC only covers up to a certain amount of employees’ pensions – a fraction for some beneficiaries.  In 2013, the maximum retirees at age 65 can get will be $57,477.24, up from $55,840.92 this year.

In other news, employees at IBM aren’t feeling the love after a new retirement policy was announced that could stick it to some workers. IBM says it will make a one-time company match to workers’ 401(k) plans yearly – not at each paycheck – on Dec. 31.  But for workers who leave IBM before Dec. 15, it’s tough luck. They won’t get that year’s matching contribution unless they’re retiring, according to an Associated Press report.

The lump-sum annual payment will equal the same amount as if the company made contributions at each paycheck. But IBM will save on retirement plan expenses by doing it this way, company officials say.

Unfortunately, experts say other companies looking to cut costs may decide to follow IBM’s lead and offer less frequent or once-a-year contributions.

The sobering reality is that retirement planning rests squarely on workers’ shoulders.  The bottom line: save as much as you can. To figure out how much that might be, use AARP’s retirement calculator. Also check out this graphic that puts the information in clear terms.

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