General Question

longgone's avatar

What does "losing your pension" mean to Americans?

Asked by longgone (19584points) July 19th, 2023

Specifically: if you’re employed and lose your job, do you lose access to the money you’ve accrued? I was watching a TV show where this was implied, and now I’m curious.

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17 Answers

KNOWITALL's avatar

No you don’t lose it but you also cannot access it without paying major taxes.
We are not taxed on retirement accounts but if you use it early, like to buy a car or pay for a funeral, you have to pay taxes the next year on that amount.

Example: I withdrew $10k for my mothers final expenses,, and at tax time I owed $100 to the government for every thousand I withdrew and used.

Make sense?

janbb's avatar

You usually can roll it over into another kind of retirement account like an IRA.

There are company pensions sometimes in addition to the Federal Social Security payments you make. You would never lose your SS and I’m not sure under what circumstances you would actually lose your company pension but you would probably have to withdraw it and roll it over to something as far as I know.

seawulf575's avatar

To start with, pensions as they used to be are a thing of the past. I think I was one of the last people in the country that still qualified for a vested pension. Or at least people my age were in that last group. Often, anymore, when you work, if they have a pension they have what they call a cash retirement fund. It is money that is accrued by year and income into an account that is available to you upon retirement, whenever you want that to be. They can give it as a lump sum or they can pay out to you for your life based on expected performance of the fund, how old you are, etc. This is money that is available to you regardless of how old you are when you leave. There are sometimes limitations on how long you have to have worked for the company before this becomes available to you.

401(k) funds are money that you put into an investment fund. Many companies do some sort of matching to you on this fund. The value is dependent on how the market performs as it is money that is invested, usually into company stock or mutual funds.

Losing your pension is something that was an old fashioned term. Up until the 1980’s, pension funds were part of the company. If someone came in and did a hostile take-over of a company, they could literally take the money in the pension fund and liquidate it for themselves. The employees for whom that money was intended had no say in the matter and they would be out of their “pension”. Laws were changed that provided protections against such things. Today, if there are pension funds (including cash plans), the company is required to file forms that show they have the funds, they can support their obligations, and how they are managing the fund to ensure solvency.

Jeruba's avatar

An old white-haired guy where I worked was in a plan where his pension was funded after ten years. There was a mass layoff, and he got hit, just about two weeks before his ten-year mark.

He was in his sixties and wasn’t going to get another job. There was nothing he could do.

He worked in HR, and if there’d been any recourse for him, I think he would have known it.

This was about 25 years ago.

jca2's avatar

I worked for the government and that’s one of the few jobs that still gives a pension, nowadays. When I started, full time, you only had to work five years in order to receive a pension (it’s called being vested, so you were vested after five years). Of course, you don’t receive the pension until you retire but you only had to put in five years. The more you worked, the more you’d receive, so with only five years in, you wouldn’t receive that much. Now the rules have changed and I think in the state I worked in, (NY), you have to work longer in order to be vested.

Very rarely would someone actually loes their pension. Even someone who committed some grievous act, would rarely loes their pension. You could, for example if you embezzled, but it’s rare.

Caravanfan's avatar

@seawulf575 I’m a government employee and I have a pension coming. But you’re right—they’re not common now.

seawulf575's avatar

@Caravanfan I’m not sure about government. I know when I was in the military I could have gotten a pension after 20 years. Not sure they are still doing that or not. But every civilian place I know moved away from them. Too much cost in the long run for the company.

JLeslie's avatar

A lot of work places that have pensions you need to work a minimum of five years to be eligible for a pension even if the money started accumulating before that. If you leave at 4 years you forfeit the pension.

In the past, some companies that have closed down people lost their pensions, the money was just gone. Most pensions are kept by a third party so that can’t happen.

In the military you need to put in a minimum of 20 years to get a pension. When people leave in year 19 or get dishonorably discharged we would usually note that they lost their pension when they were so close.

In the US:

1. a pension is something an employer sets up for an employee.

2. A 401k is an account an employee pays into to defer money for after 591/2 years old. Employers sometimes help fund the account for the employee and sometimes they don’t.

3. Social Security we pay into our entire working lives as a tax to the government and it is paid out to us for the rest of our lives monthly once we start collecting it. Some people start at age 62 some older.

To piggy back on what @janbb wrote, when you leave a company after earning a pension, but you are too young to collect it, depending on the company pension policy, you might be able to take it as a lump sum and roll it into a personal IRA account. I was able to do that from one company, it was around $3k total, so not a lot of money. My husband was not able to do it at the one company he has a pension from. Instead, when he turns 65 that pension plan will start paying him monthly.

zenvelo's avatar

There have been a lot of changes to pension law in the last 40 years. Too many people lost their pensions if they switched jobs or if the company went through a reorganization. Since then most people now save through a 401k which is transferable to a different account if there is a job change.

But some companies still only generate savings for retirement through an Employee Stock Ownership Plan (ESOP). ESOPs are great savings plans beyond a 401kk, but lousy if that is all one has.

When Enron was in business, most employees had all of their retirement in an Enron ESOP. When Enron went bankrupt, their ESOP savings went to zero and all those employees lost their jobs and “lost their pensions” (their savings).

Forever_Free's avatar

@seawulf575 Pensions are NOT a thing of the past. My daughter (22) and fresh out of college just started a job and made me beneficiary. I advised her to get an understanding of when it is vested. Many public school districts also have pensions.
I have 3 Vested Pensions waiting for me. All were public sector jobs. I know what their rules are.
Yes, restructuring of Pensions along with losing it in some cases was a thing in the past.

JLeslie's avatar

Many companies in the private sector have done away with pensions (not all) but pensions still very much exist in the public sector. Teachers, police, military, politicians, all can get pensions still. Some school districts have proposed letting teachers opt out of pension and make a higher salary, but as far as I know that initiative never passes, but maybe it has in some locations and I just don’t know about it.

The pension is a VERY important part of public work and when people who work in the public sector complain about their pay, make sure you know their pension and other benefits before you jump on board with their complaints about compensation.

I know some teachers who retire at 55 and have great pensions. They might not have earned a very high salary, but they retire early and live carefree. My dad was in the military and my mom worked for the federal government, and they didn’t make a ton of money, but their pensions and benefits are amazing. They have financial freedom. Their house is paid off and their pension easily covers their bills.

Losing a pension ne is counting on can be devastating.

jca2's avatar

My government pension enabled me to retire at age 55 with my medical free for life.

@JLeslie Most government employees I know are fully aware that our salaries were a bit lower than the private sector (although now I think private sector doesn’t always pay that well – my salary was not low and was often more than friends’ husbands who were the Comptroller of a company and an IT guy). My coworkers and I all knew the salary was presumably less in exchange for great benefits. We weren’t complaining about our salaries, however when the employer talked about cutting benefits or higher copays for medical, we would get upset because that was the whole advantage of working for the government.

The average government worker’s pension is not so incredible but the cops and firemen, at least in NYS, make great pensions and can retire after 20 years, no matter how young they are.

JLeslie's avatar

@jca2 Good point, my parents were well aware too, and most military people are also. It’s teachers, and also people who aren’t teachers, or who aren’t military, who seem to scream the loudest about salaries for those two groups, because it’s used as a political issue. Some states the teacher pay is very low, but at least half the states it’s not bad at all.

jca2's avatar

My daughter’s kindergarten teacher’s salary was 125k and that was around the year 2013. Not too shabby!

JLeslie's avatar

@jca2 Plus, I think most states the teachers can start their pension at 55, my husband has to wait until 65 for his.

I think my mom and dad were able to start when they put in enough years, I’m not sure if there is a minimum age requirement to start collecting.

jca2's avatar

@JLeslie For me (local government employee) it was “55/25” meaning 55 minimum age with a minimum of 25 years.

RocketGuy's avatar

I have an employee-contributed company pension waiting for me in the wings. Unfortunately the company reorganized so my pension was downsized to be about $300 a month – enough for McDonalds lunch for lunch the rest of my life. Yay.

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