Common Misconceptions About Pension Plans
Pension plans are a valuable retirement savings tool, but they’re often misunderstood. Let’s debunk some common misconceptions about pension plans.
Misconception: Pension plans are only for government employees
Not true! While it’s true that many government employees have pensions, they’re not the only ones. Private-sector employers also offer pension plans to their employees. In fact, according to the Bureau of Labor Statistics, more than 20% of private-industry workers in the U.S. have access to a pension plan.
Misconception: Pension plans are too expensive
Not necessarily. The cost of a pension plan depends on several factors, including the plan’s design, the employee’s age, and the employee’s salary. However, pension plans can be an affordable way to save for retirement. In fact, many employers offer matching contributions, which means they’ll contribute a certain amount of money to the employee’s pension plan for every dollar the employee contributes. This can give employees a significant boost to their retirement savings.
Misconception: Pension plans are too risky
Pension plans are actually one of the safest ways to save for retirement. That’s because pension plans are backed by the employer’s assets. This means that even if the stock market crashes or the employer goes bankrupt, employees’ pension benefits are still protected. Not all plans are federally insured by the Pension Benefit Guaranty Corporation (PBGC), but some are. The PBGC insures private pensions, sometimes employers pay premiums to the PBGC, so in case of employer default on its obligation for pension funds, the PBGC will step into the picture, take over the plan and pay the benefits guaranteed by the plan. However, depending on the shortfall, guaranteed benefits may be reduced.