Q&A: Wife laid off

Zoomer | March 26th, 2009

Question: The company my wife works for is closing (she has 27 years seniority with CAW) and she has the options of taking the pension benefits or having a large cash amount transferred to a locked-in account according to current laws. The company responsible for the pension/benefits is a large global organization from Germany. I was with the same company but was downsized back in 2002 after 25 years. Because she had “benefits”, we chose to take the money. The company I now work for is very small with a so-so pension/benefits plan.

I’m 57 and my wife is 50. She does not intend to stay at home and will look for another job. We would like to “retire” in five years. We are mortgage free. I’m very concerned about the cost of health care in the future and assume that having benefits will be a major plus in paying for possible health issues when we’re older.

We are getting mixed advice as to staying with the existing pension/benefits plan and hoping that the German company is around in the future to pay the benefits versus taking the money, investing it, and buying our own health care coverage.

I know this is a lot to comment about but I’m sure I’m not the only person in this position! Could you give some advice and possibly point out where we could obtain other information in order to make a sound decision. Your time and advice is very much appreciated! – Dave H.

Gordon Pape answers: Unfortunately, I’m receiving a lot of questions like this as lay-offs continue to take their toll in this shrinking economy. I wish there was an easy answer. There isn’t.

You’ve correctly identified the critical issue in the decision making process – will the German company still be around to make good on the pension plan and health benefits when your wife needs them? The best you can do is to make an educated guess. Do some research into the company, check out its financial situation, see whether the pension plan is fully funded or in deficit – in short, get as complete a picture as possible about its current position and future prospects. If it is a company that is faring relatively well in this environment (e.g. Volkswagen) then the pension/benefits package is probably the better choice. If the future looks uncertain (e.g. any company in the General Motors family) your wife may want to take the money and run.

f you choose the latter course, make sure the money is invested in low-risk securities. Don’t take unnecessary chances; remember this is a nest-egg for your future.

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