- Marketing materials for "Plan B pensions" claim that they allow you to "legally sneak onto the 'payroll' " of hundreds of major U.S. corporations. You don't have to work for these companies, and you can "sneak" onto the payroll of as many as you want. You can supposedly collect a pension check about every two weeks for the rest of your life, plus you get deep discounts on stock purchased through these plans, with the company even "matching" a portion of your "contributions." In the marketing materials, key words and phrases such as "Plan B pension," "plan," "pension check" and "matched" are in quotations marks. That's a significant tell.
- According to Walter Updegrave, a senior editor at "Money" magazine and author of "How to Retire Rich in a Totally Changed World," and Travis Johnson of the investigative newsletter StockGumshoe.com, these supposed "pension" plans are really just a combination of direct stock purchase plans and dividend reinvestment plans. DSPPs and DRIPs, in the shorthand of the financial services industry, are legitimate vehicles for investing in stocks, but they're not pensions. No income is guaranteed, and like any stock investment, they carry risk.
- If you want to buy shares of stock in a company, you can do so on the open market, paying a commission to a broker. But in some cases, particularly with large corporations, you can go straight to the companies themselves and buy shares from their direct stock purchase plans, saving money on commissions or even getting the shares at a discount. Once you own shares of stock in a company, you become entitled to a share of the company's profits. Those profits come as dividends. When the "Plan B pension" materials talk about "sneaking onto the payroll" of big companies, they simply mean buying stock directly from those companies and then receiving dividends. If you own stock in six companies that pay quarterly dividends, you can get 24 dividend checks a year -- or one roughly every two weeks.
- On a per-share basis, the typical company's dividends don't amount to a whole lot of money. At immensely profitable Microsoft, for example, dividends for fiscal year 2010 added up to a total of 52 cents per share. Still, it's your money, and you're entitled to it. You can get it in a check or have it direct-deposited into an account -- or you can tell the company to simply invest it in more stock. If Microsoft stock were, say, $25 a share and you owned 50 shares, 52 cents in dividends would buy you another share. To encourage you to do this, some companies, but by no means all, give you a discount on shares bought with reinvested dividends. That's the "match" that the Plan B pension marketing gimmicks are talking about.
- According to Updegrave, companies that offer to help you "set up" Plan B pensions wouldn't be doing anything you couldn't do yourself for free. Their marketing materials make it sound as if you're getting access to a special deal or exploiting a loophole in the system to cash in, when in fact you're paying extra to participate in something that millions of other investors take part in.
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