Pension plans have leeway to change rules


Our pension plan has always given us three retirement options: a lifetime annuity that provides payments for life; a "joint-and-survivor" annuity that provides somewhat smaller payments that continue after your death as long as your spouse lives; and a lump-sum payment. The lump-sum option allows us to control our own fate in retirement, and, should death occur shortly after retirement, it provides a sizable cash estate for heirs or the spouse. Recently, however, the plan took away the lump-sum option. Is that legal? Don't we have some kind of grandfathered rights?

Pension plans have considerable leeway to change the rules. Although you typically can't lose benefits you've already earned, your ability to earn future benefits - or receive payouts in the way you planned - isn't carved in stone.

If you're close to retirement and you're set on the lump-sum option, you (and your like-minded co-workers) might petition the plan to see whether its trustees would be willing to modify the change so you can take advantage of the option before it's phased out.

If you fail, however, it's not the end of the world. Millions of investors have learned lately how treacherous it can be to have responsibility for their own retirement funds. Indeed, many would love the option of having a guaranteed paycheck for the rest of their lives, which is what a lifetime annuity payout is. It's true that the checks stop when you die (or in the case of a joint-and-survivor annuity, when you both are dead), so this kind of pension doesn't benefit your children or other heirs.

But it does ensure that you won't outlive your money. For most people, that should be far more important than making sure your kids get an inheritance.

I am not in trouble with any of my creditors, but I have way too much debt. I'm thinking about a debt-consolidation loan but am worried that it would hurt my creditworthiness. Does it help or hurt to have one consolidated payment rather than paying on multiple accounts?

The actions usually associated with debt-consolidation loans - opening a new credit account and closing old accounts after using the debt-consolidation loan proceeds to pay them off - frequently will hurt a FICO credit score, said Craig Watts, spokesman for Fair, Isaac & Co., which created the FICO credit-scoring system. How much it will hurt depends on your situation and the other information in your credit file.

It's possible, although not likely in your case, that the damage is worth suffering. If a debt-consolidation loan could help you get out of the hole faster, for example, then you might be willing to make the trade-off of living with a lower score for a while to accomplish that goal.

Most debt-consolidation loans do exactly the opposite, however. Not only do they stretch your payments out longer, meaning you pay more in total interest, but often they also include high fees or other undesirable add-ons such as overpriced insurance.

You're usually much better off pursuing your own debt-repayment plan. Pay as much as you can on your highest-rate nondeductible debt - typically your highest-rate credit card. Make the minimum required payments on all your other debts until this highest-rate debt is paid off.

Then take the same amount of money and apply it to the next highest-rate debt. Continue working your way through your credit cards in this way until you're debt-free.

You'll need to stop using your cards, of course. You can't get out of debt if you continually add to the pile.

If your main motivation for seeking debt consolidation is convenience, you can accomplish that without applying for another loan.

Most credit-card issuers will take a monthly payment directly and automatically from your checking account if you authorize them to do so. You typically can specify the amount, direct them to take only the minimum payment or ask them to deduct the entire balance on the card.

In your case, you could set up all your credit cards so that the minimum balances are paid. Then you can make one additional payment each month to the highest-rate card, either paying by check, online bill payment or at the credit card's Web site.

Remember, though, that you probably don't want to close these old accounts as you pay them off, unless you absolutely can't resist the temptation to run up balances again. Closing accounts can hurt your credit score, so accounts once opened are usually best left alone.

Liz Pulliam Weston is a contributor to the Los Angeles Times, a Tribune Publishing newspaper.

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