The Financial Chair's Thoughts:
Pensions and 401k’s
I recently heard from another relatively new employee that he doesn’t have a pension. That’s actually not true. All hourly employees at Nipsco have pensions. Here’s the scoop:
Final Average Pay
Employees who started prior to June 1st, 2004 started with a Final Average Pay pension (FAP), known generally as the Traditional Pension, or something like that. The FAP is calculated based on job class and a multiplier from years of service applied to the employee’s best 5 consecutive years of pay. This best 5 years does NOT have to be in the last 10 years (although it probably is), that’s a steel mill thing. If you retire prior to age 60 with less than 85 points, your pension is reduced somewhat.
All union employees hired after June 1st 2004 have the Account Balance pension (AB), sometimes referred to as the Lump Sum or Cash Balance pension. Some senior employees also opted to switch to this plan at that time. This plan works by crediting you with a percentage of your base pay towards your pension every year. The percentage with which you are credited depends on years of service and your age. Job class has no bearing on this pension, only pay rate. The money you’ve been credited with gains simple interest once per year, at a minimum of 4%. Upon retirement you can take the big check (and pay the big taxes) or roll the money into a tax deferred retirement account of some sort.
All employees also have 401k accounts through Fidelity. FAP employees have a lower company match than Account Balance employees, since the Account Balance plan depends on employee investment to even out. If you are on the Account balance plan, you are doing yourself a great disfavor if you’re not investing at least 6% in your 401k, since you’re effectively leaving free money lay on the proverbial table.
You can see your pension plan description and balances on your pension and 401k by going through the mysource link on the company portal, or by going through www.mysourceforhr.com from any computer. The pension page will allow you to project what your pension will be for any retirement date in the future. The fidelity site will allow you to estimate total retirement income if you enter your assumptions and that pension projection. These are very useful tools.
In my experience the confusion often comes from Management, since a lot of them hired in recent years have no pensions, only 401k.