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Pension Plans

If you have a pension plan at work you will want to read this and if you don't you will still want to because it affects your retirement account.

There are two kinds of formal retirement plans that are set in place by employers. The least complicated is the Defined Contribution where you are allowed to make your own contribution and your employer may also make matching contributions of a percentage of what you put in. At retirement you get out what you put in plus all accruals. The more you contribute the more you have for retirement. A professional money manager who tries to get the most return for the amount in the pool manages the money. He is paid an amount usually a percentage of the assets in the pool, not on performance.

Sometimes a large mutual fund such as Fidelity or Janus is the manager and you are allowed to choose from 6 or 8 different mutual funds in which to place your cash. They do not encourage you to switch from fund to fund even if a fund you are in is under performing.

The Defined Benefit pension plan is much better for the employee. It states the amount you will receive monthly upon retirement. Your contribution amount is fixed and the company makes up the difference to be sure that there is enough money in your account so you will be paid the amount specified. The pension manager must use an actuarial table to figure how much money is necessary to be placed in the pool each year.

Recently it has been found that many companies have been using unreal rate-of-return figures for projection of profits. What the company is allowed to do under current law is to add any overage of calculation to their bottom line. Now it seems that those numbers have been far off so instead of your company showing a big profit last year they will be showing a loss. Suppose your manager had figured the plan would grow at 10% and now it has only grown at 5%. This could have disasterous affect on your company's bottom line and certainly on your company's stock prices.

You might want to ask your company Controller or Treasurer for a report on how your pension plan is doing including what assumption they are making for return on investment.

In a long-term bull market mutual funds do well, but in a long-term bear market mutual funds will lose money. No one talks about this, especially the mutual funds, but it is an obvious fact when you step back to look at the overall market performance for the past 75 years.

During a bear market there are only two types of accounts you can have within a 401K or other retirement account to protect yourself from loss ? either a money market account or a fixed income bond mutual fund. Better check it out.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at and discover why he's the man that Wall Street does not want you to know.


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