Retiring on a 401(k)?

Will it be enough to Retire under Vought’s proposal for Current IAM Members with less than Sixteen Years of Experience and New Hires?

The value of a traditional guaranteed pension is well understood: they provide a secure, predictable retirement income that cannot be outlived. Employees know in advance of making the decision to retire.

However, Vought is proposing to end the traditional pension plan for its current workers with less than sixteen years of seniority and new hires with the proposed Vought’s Savings and Investment Plan (SIP).

Under Vought’s proposal, current workers with less than 16 years of seniority and new hires are kept out of the Vought traditional plan and instead are only eligible to participate in the SIP plan, severely limiting their chance to reach an adequate retirement benefit. In fact, the likelihood that he or she will reach an adequate retirement income with a three percent of salary contribution to the plan is approximately zero percent.

Given financial market uncertainty, varying contribution levels to the SIP, and investment return on defined contribution balances, the resulting savings can vary significantly, for instance:

• If the typical 30 year old receives an employer contribution of around 6% of their salary during their working life then he or she will have about a 1% chance of reaching a sufficient retirement benefit.

• With a 10% contribution, the likelihood that he or she would have enough to retire is about 32%.

• In order to almost guarantee sufficient savings for retirement, annual contribution of 25% or more is required.

Therefore, as we can see with the recent downturns in the financial markets and other uncertainties your savings may suffer and not provide sufficient retirement income.

However, the SIP plan is important to the retirement security equation if it is a supplement to the current pension plan, but it is not designed to stand on its own. So be careful of the proposal that Vought is putting out to eliminate the pension plan and replacing it with a savings plan for members with less than 16 years of service and new hires.