Changing Jobs, Changing Benefits

A new employer means a new retirement plan. Be sure to ask questions about benefits -- and conduct your own research -- before it's too late

Traditional, guaranteed pensions are disappearing fast, health-insurance coverage for retirees is either disappearing or becoming unaffordable, and the future of Social Security is uncertain. If you do some research and ask the right questions before changing jobs, you may be able to leverage your retirement benefits up -- or at least maintain them. But if you enter into an employment negotiation without a clear idea of your retirement needs, you could actually lose benefits.

According to U.S. Bureau of Labor Statistics data for January, 2004, American wage and salary workers had been on their current job for a median of four years, suggesting that people who are currently working are likely to change jobs a number of times before they retire.

PHASED RETIREMENT. The first step, even before you start interviewing for jobs or responding to offers, is to ask yourself what benefits you're leaving behind. "This grounds you, so that current and future benefits can be compared," says George Paquin, a financial planner in Chelmsford, Mass. Then ask the same questions about the perks being offered by your potential employer.

If the new job comes with a 401(k) or similar retirement savings account, inquire about its basic features. When would you be eligible to start contributing? Is there an employer match? How much is the match, and when would you be vested? If you're 50 or older, find out if the plan allows the catch-up contribution -- $5,000 is allowed in 2006 -- and whether your employer will match it. According to the Profit-Sharing Council of America, a trade group for companies with 401(k)s, 95% of employers offer the option of a catch-up contribution, but only about a third of those will match it (see BW Small Business, Winter, 2005, "A Perfect Match").

People who want to work beyond the more conventional retirement age of 60 or 65 should find out if the new company allows or encourages phased retirement -- working part-time or in some other flexible arrangement. "Some companies are really open to this. You may see employees who are already doing it. At others, the worst case may be that you're forced out at a certain age -- there's no more work for you," says John Challenger, CEO of outplacement consultants Challenger, Gray & Christmas, based in Chicago (see BW, 6/27/05, "Old. Smart. Productive.").

BEYOND BASIC BENEFITS. While it always makes sense to check on the financial viability of a potential new employer before taking a job, this is especially important if the retirement benefit you're offered would be a traditional "defined benefit" pension. The Pension Benefit Guaranty Corp., a government agency that takes over pension plans that fail or are terminated in mergers, recently reported that 9.4% of such plans are in a "hard freeze," meaning current employees are accruing no new benefits (see BW Online, 1/9/06, "The Rush to Shut Down Pensions"). Plans that do not meet the PBGC's required solvency standards and are designated as "underfunded" are required to notify employees of this status, so you should ask directly if the company has had to do that in recent years.

Bedda D'Angelo, a financial planner in Durham, N.C., recommends checking on any public company's financial status by going to its Web site and searching under "investor information" for documents such as the annual report and filings with the Securities & Exchange Commission. Other data and analysis are available from sources such as BusinessWeek Online's Investing channel and Morningstar. When using these sources, look for data on the company's financial performance and projections and -- especially in the annual report -- discussions of topics such as changes in the pension plan.

Managers and executives have an especially good opportunity to feather their retirement nests when negotiating for a new job. Robert Hockett, a financial planner in Stockbridge, Ga., urges higher-level job-hunters to probe their potential new employers for retirement benefits that go beyond a basic 401(k) or traditional pension. For example, if you can't afford to max out your 401(k) from your salary, and you'll be getting bonuses, he suggests asking the employer if the company plan allows you to put the bonus into the retirement account.

INDIVIDUAL RESPONSIBILITY. Any future financial benefit -- stock options, deferred compensation, bonuses -- should be considered an asset for retirement, even if it's not labeled as such. If you would lose any retirement income by leaving your current job, be sure to negotiate some type of compensation. Hockett had a client I'll call John Jones, who, by leaving a post after 19 years instead of 20, stood to lose an additional $150,000 per year in pension income. The new company was eager to hire Jones, so he asked them to make him whole in retirement by funding a deferred annuity that would provide the amount he had counted on. The new employer thought Jones was worth it, and paid $1.3 million to buy the annuity.

Of course, salary and job description will always come first in negotiating any job change. But as our retirement system places more and more responsibility on the individual to plan and save for the future, it makes sense to work to get the best retirement benefits you can, as early in your career as possible.

READER COMMENTS

In addition to writing Your Retirement for BusinessWeek Online, Hoffman is the author of The Retirement Catch-Up Guide and Bankroll Your Future Retirement with Help from Uncle Sam. You can contact her through her Web site, www.retirementcatchup.com
Edited by Phil Mintz

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