Retirement Saving, Benefit Change Survey, and Volunteerism

George F. McClure

Region 3 PACE

Retirement saving limits to go up

Contribution limits for IRAs and Roth IRAs will be increased to $5,000 under legislation that passed both houses of Congress last year but was vetoed by President Clinton. This legislation, called the Portman-Cardin bill, will be introduced again this year and the expectation is that President Bush will sign it. The increased limit will occur in steps, over several years, before reaching $5,000. That limit will then be indexed for inflation in future years. Had there been a provision for inflation protection in place since the IRA was started, in the 1970s, the limitation now would already be at $5,000.

The same bill liberalizes the limits for 401(K) contributions, reduces vesting requirements, eases the non-discrimination requirements (affecting the limits on contributions by so-called highly-compensated individuals - this includes most engineers), and permits larger "catch-up" contributions by workers over 50.

A concern for many engineers has been the trend to convert ordinary defined benefit pension plans to cash-balance pension plans. The motivation for the conversion is to reduce the level of company contributions to the pension fund and, in many cases, to take excess funds out of the pension plan. Defined benefit (DB) plans usually calculate the retirement benefit on the basis of the average of the highest 3 to 5 years of salary (called "Final Average Pay"). Cash balance plans credit the worker's account annually with a contribution based on that year's salary; the effect is to compute the final benefit on the basis of Career Average Pay, lower than FAP. The difference reduces the company's pension liability and permits excess funds to be withdrawn from the pension fund.

Over half of the Fortune 500 companies have done the pension plan conversion to cash balance.

Cash balance plans are popular with young workers because they are inherently portable - a balance is shown for the account each year. Older workers may find that, after a conversion, it takes several years before the new benefit is equal to last benefit earned under the DB plan. This effect is called "wear-away", and legislation has been introduced to limit the effect on older workers.

The Portman-Cardin bill provided for full disclosure of the effects on workers of such a conversion of their pension plan. IEEE-USA has gone farther and adopted a position paper calling for protection of workers against financial loss in a conversion. Most of the provisions of the IEEE-USA position have also been adopted by the American Association of Engineering Societies.

Member survey needs you!

The Engineering Employment Benefits Committee is gathering data on how IEEE members have been affected by changes in pension plans, plan conversions, health insurance benefit changes, and retiree benefits.

If you have encountered such changes EEBC wants to hear from you. Information sought includes the following:

a. Have you been affected by a conversion to a cash balance pension plan? --

Would like copies of the Summary Plan Descriptions (SPD) before and after a conversion. Also, copies of any announcements in advance of or during a conversion, to show the extent to which there was 'full disclosure' of the impact of the conversion on the benefits offered to long-term employees.

b. Has your company changed pension benefits following a merger or acquisition? --

Again, copies of SPDs before and after would be helpful, together with copies of any printouts provided to employees (the employee name can be inked out with magic marker or covered when the copy is made, but these should be marked so that it is possible to follow the ones affecting the same employee).

c. Have you seen changes in your active employee health insurance benefits? Details are sought on such changes over time, whether with or without a merger.

d. If you are a retiree, and your corporate pension has been increased after you started drawing it, you can aid EEBC in determining the extent to which pension plans for retirees have benefited from a cost of living increase, and the intervals between such increases.

e. If you retired from a corporation, EEBC would like to hear from you about the extent of retiree health care benefits offered to members, and the trend in these over time and following a merger/acquisition.

f. Did you receive an offer of any special incentives to encourage early your retirement, such as adding bonus years to age and length of service; perhaps offering a bridging equivalent to Social Security benefits during the period before the retiree can become eligible for SS payments?

g. Did you vest in several employers' pension plans? EEBC is looking for real life examples of multiple pension retirees; how have they fared? Did any benefit from pension portability? Any lump sum distributions rolled over into IRAs and self-managed? Any who left their accounts with old employers, and how they fared?

Your anonymity in responding to the survey is assured. If you send an e-mail to George McClure, your identity will be stripped off before forwarding the information. Likewise, if you mail me copies of SPDs from your employer, your identity will be deleted before the material is forwarded to the EEBC.

Retired? Time on your hands? Interested in doing good by giving back to your community?

Region 3 is compiling a list of members who may like to engage in agreeable volunteer activities and would like to learn of opportunities to do so. Science Fairs need judges; students need tutors in math and science subjects; school teachers need outside experts to make "Show and Tell" presentations to their students. Junior engineers need mentors. Other non-profit groups need technical talent from time to time. If you would like to consider responding to such needs, send your name, mailing address, telephone, and e-mail address to George McClure for inclusion in the "Platinum Database" of volunteer candidates. Volunteers are needed in all sections in Region 3. Opportunities can be targeted to your location. No one will volunteer you without your agreement; the time allotted can be tailored to your desires. Life members are an ideal group for this volunteer work, but younger members are also welcomed and encouraged to respond.

Send your views, comments, suggestions, or responses to

George F. McClure

1730 Shiloh Lane

Winter Park, FL 32789-5847


Ph. 407-647-5092

Fax 407-644-4076