Alcoa’s Pension Benefits Reduced by 2021 and an Employee Call to Action

Published January 20, 2018
Alcoa will freeze US and Canada salaried defined benefit pension plans starting in 2021 as it increases its contributions to workers’ 401(k) plans.
  • Starting in 2021, Alcoa will freeze workers’ pension benefits and increase contributions to 401(k) plans
  • While a 401(k) is one way to accumulate assets, it fails to provide financial stability and guarantee during retirement
  • Employees can use their 401(k) savings to purchase a Personal Pension or income annuity to secure retirement income

In its recent annual report, aluminum producer Alcoa said it will freeze its US and Canada salaried defined benefit pension plans, effective in 2021, and move its workers into defined contribution plans. More specifically, the company said that effective Jan. 1, 2021, salaried employees in the US (and Canada) will no longer accrue retirement benefits for future service under defined benefit pension plans. Benefits earned from the defined benefit pension plans through Dec. 31, 2020, will be protected and included in benefits provided to the employees at the end of their employment with Alcoa, or when they become eligible for retirement, as defined by the plans.

As a result of the move, approximately 800 affected employees will be transitioned to country-specific defined contribution plans. The company will contribute 3% of affected participants’ eligible earnings to defined contribution plans in addition to its existing employer savings match.

Alcoa said it was freezing Pension Plans and changing other post employment benefits to strengthen the company’s balance sheet by reducing its liabilities. Alcoa also expects to make discretionary and required contributions to the U.S. and Canada DB plans in 2018 approximating a combined total of $300 million. The company also intends to make annuity purchases to lower risk and cost. Alcoa expects these actions to reduce its net pension liability by $35 million and record non-cash, non-operating income of about $20 million in the first quarter of 2018.

Alcoa’s 401(k): A Poor Replacement for Alcoa’s Pensions

But, while pensions as structured by Alcoa and other corporates stopped being the appropriate retirement solution from the employer perspective, their replacement was never meant to be the 401(k). 401(k)s were created for senior executives, who already had maxed out their pensions, to accumulate more wealth to support their retirement lifestyles. And that’s what the 401(k) — and IRA — should be: a source of supplemental income once your fundamental living expenses have been covered. Since they don’t offer any guarantees or protection from the market or your own longevity, 401(k)s just cannot provide financial stability in retirement.

Alcoa Pension Benefit Reduction and Employee Call to Action

The good news is Alcoa providing some lead time prior to reducing pensions gives affected workers a couple of years to plan for changes to their retirement benefits. That said, there is urgency and an immediate call to action in order to use this time to fully mitigate their potential shortfall in retirement income. Private pension plan options are becoming increasingly popular, and we at Blueprint Income would suggest 2 alternatives for Alcoa employees to mitigate the pension gap resulting from all the de-risking and to increase their guaranteed lifetime income.

Alcoa Pension Benefit Reduction Alternative 1 – The Personal Pension

We believe this to be the best option for all Alcoa employees. The Personal Pension is the next best thing to an employer pension and a way for you to get a pension-like income in retirement without your employer.  Instead of being provided by employers, it’s backed by insurers, like an annuity. But, unlike the average annuity, you can purchase it in small amounts over time. Blueprint Income offers a Personal Pension account with the lowest minimum, $5,000. After opening an account, you can make subsequent contributions of as little as $100, each of which will increase your pension check.

Below, you can see what contributing to a Personal Pension will guarantee you in annuity retirement income. After just a few years in retirement, you’ll have recouped your initial investment, and the rest will be profit. A $5,000 contribution is necessary to start an account.

From there, you can fill out the information to have one of our specialists follow up with you, or continue with the enrollment process on your own. To do that, start with the Personal Pension Builder, where you’ll be able to set a goal for how to grow your pension over time. Note that all future contributions are optional, but it’s always great to have a goal.

Alcoa’s Pension Benefits Reduction Alternative 2 – Buy an Income Annuity

An alternative is to buy an income annuity. Income annuities generally come in two types — longevity annuities and immediate annuities. Immediate annuities (as the name implies) have income starting within the next 12 months, whereas longevity annuities start income (at a predetermined level two year or more into the future). Both of these types of income annuities provide the financial security that you get from a guaranteed lifetime income stream that comes each month for as long as you’re alive. They’re ways to increase your pension check. 

At Blueprint Income, we offer income annuities from more than 15 top rated insurance companies. Click below to get real-time personalized quotes, where you can compare options offered from different insurers on an apples-to-apples basis.

Alcoa’s Pension Benefits Reduced

From there, you’ll get access to our annuity guides, team of specialists to help you analyze your retirement finances and walk you through the application process.

In short, if you’re looking to mitigate Alcoa’s pension benefit reduction and get more guaranteed lifetime income, you have two alternatives for how to get it. (Please note that these options are available to all Americans, not just Alcoa employees.)

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Lauren Minches

Lauren Minches

Financial Planning Professional

Lauren is an actuary by training with expertise in retirement, finance, and risk. She writes about annuities to make them easier to understand and evaluate. Her goal is to help people create retirements with more time for living and less time thinking about money.