Expert: Allen - 5/17/2010

Question
Wondering if you can advise, once an employer has announced they are freezing the plan on specific date, how they might base the subsequent payout to an employee on a 100% fully funded plan?

Is there an average number of years for an employees (10 years)   Prior to the freeze, my plan told me my payyout would be $1700 a month at 65 if I left the firm today.   If I stayed until retirment, I would make about $4000 or so a month.   It was a generous plan, and now we are advised plan freeze takes effect June 2010.  In the event there is a payout, how can I gauge what the average number of years are most of these payouts based on?  So for someone age 65, retiring this years, versus someone in their 40's, is the average payout reflected on 10 years or age 75, or is each plan unique.  Thank you for any information you can provide, realize this was a promise and gift from my firm, so really disheartened to think its gone..

Answer
At the time the plan is frozen, you will be entitled to what is known as your accrued benefit. This is the benefit you would receive if you terminated employment on the date of the freeze. It sounds like it's $1,700 per month plus whatever benefit you earned since the date of the last statement.

There is no average number of years in the calculation of the value of your benefit. It will be paid beginning at age 65 as long as you live. That might be 10 years, 20 years or more. If the plan allows for a lump sum payment instead of the monthly pension, the lump sum amount will be calculated based on the average life expectancy of individuals at age 65 and an interest rate. $1,700 a month beginning at age 65 is worth around $250,000 at age 65 and worth around $60,000 at age 40.