Best Pension Plans

Best Pension Plans USA

Contrary to popular belief, there are still companies and governments in the United States that offer excellent pension plans to their employees. Unfortunately, you will spend some time searching for the organizations with the best pension plans. The number of entities offering really good pension plans has declined significantly in the last few decades.

There are good pension plans available in both the private and public sectors. Taking the time to research them and locate an employer that offers one can be the first step to having a comfortable and enjoyable retirement. Here is an overview of the best pension plans and some tips in finding them.

Industries with the Best Pension Plans

The two industries most likely to have really good pension plans, according to CNBC, are oil and gas and technology. Seven of the financial network’s top ten pension plans were at companies in those fields. The other top firms were in industries such as consumer goods, insurance, financial services, research, and supermarkets.

The best plans were in the oil and gas industry, and the two top firms were Chesapeake Energy, oil and gas exploration firm, and Devon Energy, a natural gas company. The next best were in the technology industry, where Qualcomm, Genentech, and Microsoft had really great plans.
Other top pensions were offered by a wide variety of firms, including insurance giant Aflac, toothpaste and soap maker Colgate Palmolive, and Publix, a supermarket chain in the southeastern part of the country. There seemed to be no common denominator among the firms other than the retirement plans, so good retirement benefits can be found in almost any industry. The key to finding them is to evaluate the plans rather than the employer.

What the Top Private Pension Plans Have in Common

CNBC’s Top Ten list actually tells us quite a bit about the best plans. It also shows us what you should be searching for in a plan. There are many companies that offer these features that don’t make the list.

Top Pension Features Include:

• A 100% Match. The employer matches every contribution that the employee makes. In the case of a 401k or Individual Retirement Account, the employer puts in $1 for every dollar the employee contributes. Since such accounts are tax deferred, this can lower your income bill. This essentially doubles your retirement savings if you are investing in a good indexed fund; you could see the amount greatly increase over time.
• Many companies make additional contributions to retirement plans. Genetech makes an additional 2% contribution to all retirement accounts every year.

• There are a few companies that make additional contributions to plans based on performances. USAA, a bank and insurance company that caters to the military, makes a 3 to 9% contribution to the plan every time it reaches its performance goals.

• Matching pay. Some companies like Microsoft actually base their contributions to the plan on a percentage of the employee’s pay. At Microsoft, some employees actually receive a 50% match.

• High level of retirement plan participation. The more people participating in the plan, the better. The top companies have an 87% to 90% participation rate in the plan.

• Health and life insurance for retirees. This benefit used to be common, but it’s getting rarer. Some of the best plans, like Aflac, actually subsidize health and life insurance after you leave. That can be a tremendous savings for an older person.

• Immediate or fast participation. Many outfits require employees to work there for a period of time before participating in the program. The best organizations are 100% vested, which means you can participate in the retirement plan from your first day on the job.

• Options for everybody. There are some companies that make special plans available for certain employees; for example, special plans for executives and 401K or IRA matches for contractors.

• Smaller companies and organizations in out-of-the-way places are more likely to offer good benefits to attract employees. Chesapeake Energy and Devon Energy are located in Oklahoma; Microsoft is based in Seattle several hundred miles north of other tech companies, and Aflac is in Columbus, Georgia. These organizations have to add extras to attract good employees.

How to Get a Really Good Private Retirement Package

The first key to getting a really good package is to ask around for one. Enquire about this when you apply for a job and let recruiters and others know that such benefits are important to you. There are some firms that may tailor benefit packages for particular employees.

Getting more education and experience can help. Persons with advanced degrees in engineering, computer science, software engineering, and chemistry are more likely to be offered a job with a good package. Having experience in those industries helps as well.

Completing your master’s degree or doctorate is a really good first step in ensuring a really great pension package. Having several years of experience in the field is another way to get a good package.

Loyalty also pays persons willing to stick with the same job for years or decades; they are more likely to get a really good retirement deal. Many pensions are set up to vest or increase the employer’s contribution for the number of years worked. That means it’s a good idea to find a job you really like with an organization and stick with it.

Going into industries that offer larger pensions can help as well. There are some businesses that traditionally offer much better benefits than others. To find these, you will have to do some research.

Learning the basics of retirement planning can be a big help as well. Learn the different between a Roth IRA and a regular IRA, and make sure you know what a defined benefit plan is and you understand tax-deferment. This will enable you to tell if an offer is good or not.

Finally, don’t underestimate the power of a good salary or good income. If you are making a good salary, there are ways that you can set up your own really good personal benefit plan. You can create your own pension by purchasing annuities contracts issued by insurance companies that provide beneficiaries with a regular payment. These plans are tax-deferred and there is no limit to the amount that you can purchase.

Don’t automatically turn down a job with a really good salary or the possibility of additional earnings from such sources as bonuses or commissions because it lacks a good retirement package. A creative person can easily make up for the lack of such benefits by careful retirement planning and investments.

Best Government Pensions

Pensions in the public or government sector are very different from those in the private sector. Most private companies now offer some sort of defined contribution plan in which the employer matches the employee’s contribution to a retirement account. Many governments still provide a defined contribution plan in which the retiree is paid directly by the employer.

The advantage to a defined contribution plan is that income can be steady and guaranteed. The disadvantage to such a plan is that it is vulnerable to inflation and only as good as the organization backing it. The funds in an IRA or 401k can be wiped out by stock market losses, but there is no way for corporate executives to raid them.

A big drawback to some government pensions is that there are no guarantees to them. Most state pensions and many local government retirement schemes are financed by pension funds. Recent media reports have revealed that many of these funds are underfunded and unable to meet obligations. This occurred because politicians refused to provide the money necessary to maintain them.

Something to be aware of is that private defined benefit plans are partially insured by a federal agency called the Pension Benefit Guarantee Corporation. Government pensions are not insured, and there is no federal mechanism in place to guarantee or fund state pension funds. That means those plans could theoretically go away.

If you are thinking about relying on a state or local government pension, it would be a good idea to find the one that is most funded. If the funds are not there, the retirees in the plan will not receive their payments and will be forced to rely on savings and Social Security.

The states with the best funded pension funds are:

• New York
• Wisconsin
• Delaware
• North Carolina
• Washington (the state, not the District of Columbia)
• South Dakota
• Tennessee
• Wyoming
• Florida
• Georgia

It should be noted here that the Fiscal Times website found that only two states, New York and Wisconsin, had fully funded pension funds. Of the others, only one, Delaware, had a 99% funding level. This means that even some of the supposedly best funded states could be in trouble.

The situation could get worse in the near future because many states are cutting pension funding to pay for other programs. That means the really good pensions that many state and local employees take for granted could soon be a thing of the past.

Military Pensions

It goes without saying that one of the best all-around pensions in America is that offered by the U.S. Armed Forces. Persons who serve in one of the five uniformed service, Army, Navy, Marines, Air Force, or Coast Guard, for 20 years are automatically eligible for a pension regardless of their age. This means that a person who entered the service at the age of 18 and left at age 38 after 20 years could receive a pension.

Under the current system, a military retiree receives a pension that amounts to 40% of their final rate of pay and can be eligible for a $30,000 cash bonus. Some retirees can also qualify for a system called High 36, in which they receive a payment that is equivalent to 50% of their salary for the years of service with the highest pay rate.

Another advantage to military retiree pay is that retirees are eligible for a 2.5% cost of living adjustment (or COLA) for each year of service. This means that the payment increases with the cost of living or the rate of inflation. Individuals that serve for more years can qualify for a 3.5% COLA.

Individuals that served in the National Guard or Reserves can qualify for a pension if they are over 60 years of age and completed at least 20 years of service. The pay rate is similar to that for persons who served in the regular or full-time military.

Military retirement pay is subject to the federal income tax, but it is exempt from state income taxes in most of the U.S. states that have state income taxes. It is exempt from Social Security or withholding taxes as well.

It should be pointed out that retired military personnel are veterans. In the United States, veterans receive quite a few benefits, including healthcare from the Veterans Administration (or VA). Many veterans can also qualify for military disability pensions as well. These pensions are available to former prisoners of war and anybody who was injured or stricken with illness while serving in uniform.

Finally, one of the biggest advantages to military pensions is that a person who receives one can take another job and earn more retirement benefits at that position. That means a person could be receiving a military pension and a retirement benefit from another government or a private employer.

Federal Pensions

The best pension deal in the United States is probably one that is provided by the national or federal government. All federal employees can participate in a defined contribution plan called the Federal Employees Retirement System (or FERS) and in a savings plan called the Thrift Savings Plan.

The amount of FERS is calculated by using a very generous formula. For each year of federal service, 1% is added to the pension amount. This is then multiplied by the highest level of salary that the employee receives from the federal government. That means a person with 30 years of federal service who received a federal salary of $100,000 a year for at least three years would receive a pension of $30,000 a year. This would be adjusted for the cost of living and exempt from many state income taxes.

Military service is considered federal employment, so a federal employee can add any time they spent in uniform to the employment figure. That means somebody who spent six years in the Navy and 24 years working for a federal agency would have 30 years of federal service for pension purposes. Some employment for state and local government agencies also counts towards federal pensions.

There are age limits on federal pensions for a person. A person with 30 years of service can retire between the ages of 55 and 57 depending on their age of birth. Individuals with 20 years of service will have to wait until age 60 to retire. Anybody with more than five years of federal service can retire after age 62.

To add icing to the cake, the employee can donate as much as they want to the Thrift Savings Plan. This can augment the federal pension income. It should also be noted that persons who retire from the federal government can still work for several years and augment their income before their final retirement.

Retired federal employees will also be eligible for a variety of other benefits, including health insurance and life insurance. There are also some special pensions available for certain individuals, including firefighters.

Future of Pensions

It should be noted that retirement plans in the United States have changed substantially over the last 30 years. Three decades ago, a large percentage of American workers could qualify for traditional defined benefit or pension programs. Today, most people rely upon contribution arrangements, such as 401K plans and Individual Retirement Accounts.

It is therefore quite likely that retirement options could change greatly in the coming decades. Newer and better alternatives might appear, and some of the arrangements that are common today could disappear.

One new benefit is a wide variety of retirement investments similar to pensions that individuals can take advantage of on their own. It is now possible to set up Individual Retirement Accounts (IRAs), 401k plans and Roth IRAs, and 401k plans that can create a private retirement fund entirely under your control. This can give self-employed people, contractors, and freelancers the same benefits as full-time employees.

Annuities, including variable and indexed annuities, are contracts between individuals and insurance companies. Under the terms of the contract, the insurer provides a beneficiary with regular payments for a given period of time. Lifetime annuities provide a benefit that lasts until a person’s death. Indexed and variable annuities allow persons to invest a portion of the funds in the stock market and reinvest the gains in the plan.

A major advantage to annuities and traditional IRAs and 401ks is that they are tax deferred. This means that no income taxes are due in the funds in such a vehicle until they are taken out. It means that a person can effectively deduct any money in one off his taxes and reduce his taxable income, which should reduce his tax rate. The major advantage that annuities provide over IRAs or 401ks is that there is no limit on the amount of money you can place in them. There are strict limits on contributions to IRAs and 401ks.

This means that even persons without a good pension can enjoy a really comfortable and prosperous retirement. Therefore, everybody can enjoy the same benefits that the best pension plans offer.