May 3, 2006

Published in Wake Forest, NC

            When a company freezes its pension plan, contributions or additional benefits will be discontinued during the freeze. Additional benefits typically would have increased each year of continued employment. Generally, when you retire or if you become disabled and can no longer work, distributions will be paid to you based on your plan's distribution options.

            Companies that freeze their pension plans may replace them with 401(k) plans, a move that gives you both opportunities and responsibilities. Now, you must determine how much you need to save in your retirement plan. That means you need to calculate your retirement income needs and determine how much you might need from your 401(k).

            Also, you must choose the right mix of available investments within your 401(k) to help meet your retirement goals, given your individual risk tolerance and time horizon. As time goes on, and your situation changes, may need to periodically adjust your investment mix, as well.

            To manage your 401(k) correctly, you may want to work with a qualified investment professional - because, as you can see, there's a lot at stake.

            If your company moves from a pension plan to a 401(k), it may also provide you with the option of putting some of your money into the new Roth 401(k). Using the Roth feature in your 401(k) allows you to contribute after-tax dollars, which means you pay taxes on your contributions right away. Although distributions of Roth 401(k) contributions are always tax free, distributions must meet a triggering event such as retirement, disability or death. Earnings also can be tax free once you reach age 59 ½ and have had the Roth 401 (k) for five years. This tax-free feature can be quite valuable in helping you build resources for retirement.

            Apart from actively managing your 401(k), you have other options to help replace some of the income you might lose from the freezing of your pension plan. Here are some possibilities:

            Contribute to your IRA. Try to fully fund your Roth or Traditional IRA, both of which offer tax-advantaged savings and an almost unlimited array of investment possibilities.

            Purchase an annuity. If you can afford it, you might want to purchase a fixed annuity, which offers tax-deferred growth of earnings and can be set up to provide you with a lifetime income stream.

            Take Social Security earlier. If your pension had not been frozen, you might have preferred to start taking Social Security at your full retirement age, which can be anywhere from 65 to 67. Now, however, you might need to start collecting your checks at age 62. Your monthly payments will be smaller than if you had waited, but if you need the money, its there for you.

            Adjust your investment portfolio. With the help of an investment professional, you might want to restructure your portfolio to provide you with more income during your retirement years.

            Clearly, it can be upsetting to see your pension frozen. But by managing your 401(k) wisely, and by considering the other steps mentioned above, you may be able to attain sufficient retirement income to overcome the loss of what you once counted on.