How Does the Pension Protection Act Affect "Craft" Employees?

Q: Hi Jeff, I am a Verizon Company employee. There is a lot of rumor and speculation about how the pension protection act will affect those of us “craft” employees who are covered by a Union contract and there a many people who are retiring because they’ve been told that in January 2008, we will start losing pension money because the company will be allowed to calculate differently our pension amounts. Do you know anything about this?...

A: The issue is that a different discount rate will be gradually phased in. The higher the rate of return used in the calculations, the less the company must set aside to provide the benefit per employee they've promised. When you take a lump sum, you get that 'set aside' amount. So if a higher discount rate is used, the lump sum amount decreases.

The real issue is how much it will affect you. For some employees, it could be the equivalent of a year's salary, others not that much. So you need to see how it affects you and factor that into your calculation.

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