Pensions

There are two types of pension plans. The first is called defined benefit and the money for these plans is held with the company and that company agrees to pay retirees a calculated amount at retirement. These plans have come under fire in recent years since many companies did not have enough money set aside to pay the pensioners. These plans are being phased out and being replaced with the second type of plan called defined contribution. The money for these plans is kept in the employees account and cannot be touched by the company. These plans have many names but the most popular is 401K. There is currently 18 trillion dollars in these defined contribution plans and the government is looking for ways to federalize this money. This means the government would like to take over these accounts and put that money into a national pension plan owned by the government. This way they can redistribute the income according to what they consider fair. The net result will be what we currently have with social security. If you earned an average of $50,000 per year during your career and you are now 62 and retire you would get $1,000 per month from social security. If you earned an average of $10,000 per year over your lifetime and you are now 62 you will get $400 per month. You have paid in 5 times more and you get 2.5 times the benefit. Social security benefits are by design weighted against higher earners. In addition there is a good possibility that the higher earner will be tax on part of the benefit which is double taxation since social security is taken from your check after taxes.