Thursday, December 13, 2007

Must Read Infromation ...

FedxMX Organizing Committee Newsletter
We would like to take this time to highlight some of the changes that are going to take effect in the near future here at FedEx Express. All of these changes will affect everyone differently but they are important to your financial future.
Pension Changes-
The pension plan is changing, effective June ’08, from the Traditional Pension Plan to a Portable Pension Account. You have no choice in this matter and this change affects each employee differently and is hard to forecast how this change will affect your retirement security.

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1 comment:

irudedog said...

I will attempt to list how this change will affect an employee age 36 with 10yrs of service. For this example I will use $85,000 as the Hi 5 avg thru 2008 and $115,000 as the Hi 5 avg thru 2032, which is age 60 for this employee.

Traditional Pension Plan formula –

2% x Avg Hi 5 x Yrs of Service

2% x $85,000 x 10yrs = $17,000 capped yearly retirement income

2% x $115,000 X 25yrs = 57,500 non capped yearly retirement income

This employee lost $40,500 per year in retirement income, which is significant.

Portable Pension Account Plan uses several factors such as age, yrs of service, compensation percentages and transition credits to calculate a percentage of compensation contribution to this plan. If you read the PPA’s plan and apply it to this employee and forecast any pay raises that will affect the contribution to the plan the employee at age 60 will have approximately $285,000 in this acct. This is assuming the plan compounds at an annual rate of 4% a year.

If the employee retires at 60 and lives to age 75 they will have 15 years that these plans will have to supply their retirement income for.

Impact of Changes –

Lost $40,500 in yearly income for 15 years = $607,500

PPA plan account balance at age 60 = 285,000

Employee will have a retirement income shortfall of $322,500 during the 15yrs the employee is retired. This number is large and significant. The employee will now have to adjust their retirement planning to compensate for this shortfall.

Of course these numbers are using projected earnings and will change but the fact that the shortfall is so large for this employee that everyone should look at this change every closely.

There is a very good article at Smartmoney.com by Peter Keating titled Let’s Make a (Bad) Deal.

http://www.smartmoney.com/thenewretirement/index.cfm?story=april2007

I think everyone should take a moment to read thru this article as it does shed some light on how corporate America is changing and its attitudes.
401K Plan-

2008 Safe Harbor Notice of Qualified Automatic Contribution Arrangement and Qualified Default Investment Alternative

Hopefully everyone received this notice. This will take effect Mar. 01, 2008. It applies to the 2008 year and concerns an automatic enrollment in the 401K Plan.

If you are not enrolled or currently contribute less than 3% in the 401K Plan you will be automatically enrolled in the plan at a 3% contribution level. In Mar. 2009 your contribution level will increase 1% each year until it reaches 6% of your eligible earnings.

If you are enroll at a contribution level above 3% your earlier election will continue to be followed.

If you prefer to not contribute and not be automatically enrolled in the 401K Plan you will have to contact Vanguard at 800-523-1188 or www.vanguard.com. This must be done within 60 days from Jan. 02, 2008.

You can also contact Vanguard to change your contribution amounts and investment allocations at anytime.
Company Match -

Starting Jan. 1, 2008 if you are enroll in the 401K plan the company match will change from $500 to 3.5% of the employees eligible annual earnings. In order to receive the maximum company match you must elect to contribute 6% of your earnings to the 401K Plan.

United we Bargain, Divided we Beg.