PBGC Broke - Who will pay your pension?

[frayne]

I'm currently in the process of reading " Retirement Heist" by Ellen Schultz and if there was ever a book that really explains how companies and executives plunder the pension funds, this is it. It is a good read however it will royally piss you off when you find out how companies (damn near every last one of them) have screwed their workers by using legal accounting shenanigans and tax incentives to enrich those at the top of the executive food chain, all the while short changing hard working employees who have given their lives to the company in the hopes of getting a fair shake via a decent pension.

 

[ERD50]

I'm currently in the process of reading " Retirement Heist" by Ellen Schultz and if there was ever a book that really explains how companies and executives plunder the pension funds, this is it. It is a good read however it will royally piss you off when you find out how companies (damn near every last one of them) have screwed their workers by using legal accounting shenanigans and tax incentives to enrich those at the top of the executive food chain, all the while short changing hard working employees who have given their lives to the company in the hopes of getting a fair shake via a decent pension.

That book has been discussed in the other threads that MichaelB helpfully linked to (I'm in the process of re-reading those). Just my opinion here, but I think it would be helpful to leave references to that book out of this thread. I'd rather stick to facts, rather than what appears to be an emotional outburst against MegaCorps.

As far as I was able to determine from the posters defending that book, no 'hard working employees who have given their lives to the company' had their pensions cut (with the possible exception of some 'high earners'). It is true that some MegaCorps pulled out what was considered 'excess funding', and used it for other purposes, but they kept them funded per PBGC rules, and earned benefits were paid. And the formulas for pensions earned forward from that date were changed, but these were not retro-active.

I'm interested in the facts of how secure the earned benefits of our PBGC insured pensions are, which is the topic of the OP, and I hope to learn more about that subject. It is very relevant to many of us FIRE'd folks. The history of any changes to our forward-looking pension formulas while we were working is water under the bridge (and I was affected - twice), and there is nothing we can do about that now.

-ERD50

 

[MichaelB]

That book has been discussed in the other threads that [-]MichealB[/-] MichaelB helpfully linked to (I'm in the process of re-reading those).

fixed it for you

Just my opinion here, but I think it would be helpful to leave references to that book out of this thread.

Yep. Prior discussions involving that book have not ended well.

 

[eytonxav]

That book has been discussed in the other threads that MichaelB helpfully linked to (I'm in the process of re-reading those). Just my opinion here, but I think it would be helpful to leave references to that book out of this thread. I'd rather stick to facts, rather than what appears to be an emotional outburst against MegaCorps.

As far as I was able to determine from the posters defending that book, no 'hard working employees who have given their lives to the company' had their pensions cut (with the possible exception of some 'high earners'). It is true that some MegaCorps pulled out what was considered 'excess funding', and used it for other purposes, but they kept them funded per PBGC rules, and earned benefits were paid. And the formulas for pensions earned forward from that date were changed, but these were not retro-active.


-ERD50

You should have followed your own advice and not interjected that 2nd paragraph

 

[frayne]

Excuse me !

 

[ERD50]

You should have followed your own advice and not interjected that 2nd paragraph

Perhaps you are right. I only meant to provide a little perspective as to why it gets controversial, rather than just say it w/o any justification/reason.

It may have been wrong for me to do so, and I'm sure it's not the first nor the last time, there are lots of shades of gray. At any rate, I am very interested in learning more about the subject of the OP (security of earned benefits), and if there is anything we should be doing. I wonder if AARP has a position on this?

-ERD50

 

[frayne]

This site may help understand how the PBGC works and pays benefits.

Your Guaranteed Pension

 

[imoldernu]

MichaelB asked:

Was your question about PCGC answered?

There are many threads about pension funding, you might want to do a search to see them.

I've spent some time looking through previous threads... not all... but so far, I haven't found a definitive answer to this question.

Those of you who have pensions, will remember that when you entered the pension program, you were told that the plan would be safe, because of the protections provided by the Government. HUH? What government...? Who has oversight over what your plan trustees (did, are doing) to protect your promised returns? Erisa? Congress? The PBGC? The IRS? The Secretary of the Treasury?

So the question... WHO was/is responsible for oversight?
When things go wrong in a program that has government blessing, the normal thing to do is find out what went wrong.

Every source that I have found speaks of reports... documents... filings... and all kinds of paperwork, but I don't seem to be able to find anything that tells WHO, and HOW the oversight is conducted. The best answer I found was the one I posted, but even going to the department no clarity.

The U.S. Department of Labor’s Employee Benefits Security Administration is the agency charged with enforcing the rules governing the conduct of plan managers, investment of plan assets, reporting and disclosure of plan information, enforcement of the fiduciary provisions of the law, and workers’ benefit rights.

Boil it down... If I was losing my pension, and someone screwed up, I sure would wanna find out who that was, and at least, fire his a**.

I'll make it even more simple... was there any oversight or law that would have prevented investing all of GM's retirement funds in Bernie Madoff's scheme?

 

[imoldernu]

HAH!
Found an answer at the Government Accountability Office:
GAO: High Risk | Issues By Agency | Department of Labor | Improving Private Pension Plan Monitoring and Enforcement

Here's the answer!!!!

Labor's Employee Benefits Security Administration (EBSA) lacks information it needs to provide effective oversight of private pension plans, such as specific information on 401(k) plan fees, which could improve monitoring and compliance efforts.
Highlights of GAO-07-21 (PDF)

Seek and ye shall find...

It doesn't affect me, but I'm surprised those with pensions, don't seem to worry about why (after promises) the government let them down...
So now... looking for the next windmill, Sancho !

 

[Midpack]

I'm currently in the process of reading " Retirement Heist" by Ellen Schultz and if there was ever a book that really explains how companies and executives plunder the pension funds, this is it. It is a good read however it will royally piss you off when you find out how companies (damn near every last one of them) have screwed their workers by using legal accounting shenanigans and tax incentives to enrich those at the top of the executive food chain, all the while short changing hard working employees who have given their lives to the company in the hopes of getting a fair shake via a decent pension.

The part in red raises equal if not greater concerns IMO than what "companies and executives" may or may not have done. Who unnecessarily facilitated the "heist" and why? No reply necessary...

 

[MichaelB]

So the question... WHO was/is responsible for oversight?
When things go wrong in a program that has government blessing, the normal thing to do is find out what went wrong.

Every source that I have found speaks of reports... documents... filings... and all kinds of paperwork, but I don't seem to be able to find anything that tells WHO, and HOW the oversight is conducted. The best answer I found was the one I posted, but even going to the department no clarity.


Boil it down... If I was losing my pension, and someone screwed up, I sure would wanna find out who that was, and at least, fire his a**.

I'll make it even more simple... was there any oversight or law that would have prevented investing all of GM's retirement funds in Bernie Madoff's scheme?

The reason I asked was the original post was about PBGC, which insures but does not regulate. Pension funds are private and are subject to all kinds of state and federal regulation, but the key regulations and enforcement can be found at SEC, IRS and DOL. The trustees and managers are responsible for the operation, both compliance as well as results. What keeps the GM fund from investing with Madoff would be the fund by-laws and it's own set of management guidelines.

For any specific pension, the best place to look for information is the auditors report and fund annual report. If it is a publicly traded company, the SEC 10-K.

 

[brewer12345]

It doesn't affect me

So why the hell do you care?

 

[teejayevans]

One of my pensions has a cash balance type lump sum. But when I compare the income if I rolled it into a SPIA - it falls FAR short of what I can get as an income stream from the pension plan itself.

Some funny math that not in my favor is going on.

In my case it was the exact opposite, CB with a pitiful SPIA, I took the money and ran...it took 8 wks and several exchanges with my megacorp to get it.
TJ

 

[imoldernu]

So why the hell do you care?

Hmm... I suppose you're right.
.........................................................
anyway... I think I'm getting closer to answering my own original question about the oversight that was supposed to be present to avoid fraud and mismanagement. Fiduciary responsibility is the operative term.

The question stems from the size of the problem. Current Pension obligations total an estimated Eighteen Trillion Dollars. That's more than the National Debt.
Many of the Pension Funds now being paid by the PBGC were funded at levels as low a 10%, and the new "safe" level of funding seems to be 70%.

How could that happen if there are rules designed to keep these pensions safe... Whatever rules are in place, how did the situation become so grave?

So here's an article from 2011 that sheds some light on the problem, and furthermore seems to indicate that there is no real effort to correct the problem in a hurry.

U.S. to Delay Pension-Plan Rules - WSJ.com

Two quotes from the article:

The assistant Labor secretary who came up with the new rules, Phyllis Borzi, had pushed to finish them this year. Supporters say the rules would clean up conflicts of interest that have long plagued retirement plans, especially smaller ones.

But the proposal met heavy resistance on Wall Street, amid questions about its cost and the impact on investors' retirement choices. The Labor Department said Monday it would likely repropose the rule early next year.

The Labor Department isn't known as a financial cop. But the agency is more concerned about potential abuses now that assets in pension plans, 401(k)s, IRAs and other retirement accounts have swelled to $18 trillion.

The pushback from the corporations has been so far, successful. In other words, Banks and Brokers can offer risky investments (high interest) to plans, which makes the plans look good on the surface (more projected income to satisfy the numbers part)... but at the same time, has the hidden risk.

edit to add a more recent news article... Pension Plan fixes to be delayed again.... Score Wall Street 2, Public 0
http://in.reuters.com/article/2012/06/27/adviser-fiduciary-debate-idINL2E8HRDUC20120627


I don't have pension plan losses to cite, but similar funds, like the Harvard Endowment funds went from $37 Billion to $26 Billion in one year.

So, Yes, while I shouldn't care because it doesn't affect me directly with a loss of pension monies, any time 18 Trillion dollars is up for grabs, the ripple effect is enough to think about.
..........................................................
While everyone is concerned about the rules that affect how they receive their pensions.... no matter what the rules say today, when the money isn't there anymore, the rules are going to change...
Gotta fix the underlying problem.

 

[brewer12345]

So, Yes, while I shouldn't care because it doesn't affect me directly with a loss of pension monies, any time 18 Trillion dollars is up for grabs, the ripple effect is enough to think about.

So you are basically a busybody?

 

[ERD50]

So, Yes, while I shouldn't care because it doesn't affect me directly with a loss of pension monies, any time 18 Trillion dollars is up for grabs, the ripple effect is enough to think about.

I think you are right to be concerned, even if you are not directly affected. The ripple effect can be very real (geez, I hope I used the right effect/affect there - I try). Like-wise, I'm concerned about the public pension funding, even though I don;t have one. The ripple effect could be significant to me.

But I don't think it's realistic to say $18B is 'up for grabs'. That may be the total obligations over many, many years, and the majority of it is funded.

I guess I'm really curious as to how much is really at risk.

-ERD50

 

[MichaelB]

I bet more people in the US will suffer from type-2 diabetes than pension failure over the next couple of decades.

 

[imoldernu]

Think there's a hint I've been posting too much...
Will try to get down to one line comments.

 

[M Paquette]

So you are basically a busybody?

I think this gets back to that "What will I do all day?" thread

 

[growing_older]

no 'hard working employees who have given their lives to the company' had their pensions cut (with the possible exception of some 'high earners')

I don't see how you can believe this. Maybe you are saying, for people who had already put in a full career and retired with a modest pension, the PBGC has maintained those pensions. I worked at companies where the pension plans were cut and all employees who weren't already retired did indeed have their pension cut and the formulas to calculate their partial payout were so skewed I still don't understand why it wasn't criminal. I know hundreds of people who had pension benefits cut or eliminated entirely. This was widespread and very common.

 

[JOHNNIE36]

I have read so much lately about the move by GM to transfer the entire salaried retirement program to Prudential that I am confused. On top of that, I don't really care anymore. In 2008 they eliminated our health care benefits and now they move our retirement plan over to Prudential. I'm not saying it's all bad, but it leaves a sour taste in my mouth. I think the PBGT is not involved in this transfer and the only guarantee we have is the "full faith and credit" of Prudential. Isn't that the term they use? I'm not saying that is bad as Prudantial is probably as solvent as the United States Government. A lot of companies will go under before Prudential and to tell the truth, I have more faith in Prudential than GM. Can you tell that I am bitter? Not bitter, just pissed.

 

[ERD50]

no 'hard working employees who have given their lives to the company' had their pensions cut (with the possible exception of some 'high earners')

I don't see how you can believe this. Maybe you are saying, for people who had already put in a full career and retired with a modest pension, the PBGC has maintained those pensions. ...

Yes, that is what I'm saying. The topic of the OP was the ability of the PBGC to remain solvent to cover any failing private pensions, and they have done that (up to the 'high earner' limits).

I worked at companies where the pension plans were cut and all employees who weren't already retired did indeed have their pension cut and the formulas to calculate their partial payout were so skewed I still don't understand why it wasn't criminal. I know hundreds of people who had pension benefits cut or eliminated entirely. This was widespread and very common.

Can you provide a reference? I'm not aware of (which does not mean it didn't happen), any pension changes since the PBGC was enacted that cut the benefits that were already earned. I know that changes were made (it happened to me), that lowered the rate that future benefits were earned. So, if you were 20 years into a 30 year career, you earned 10 years under the new, lower formula. So your pension was less than if no changes were made. But they didn't retroactively change the first 20 years. That's what I'm saying.

-ERD50

 

[travelover]

........ In 2008 they eliminated our health care benefits..........

Johnnie, did they eliminate all health care for retirees, or just move Medicare eligible retirees off their plan and onto Medicare?

 

[ERD50]

... and now they move our retirement plan over to Prudential. I'm not saying it's all bad, but it leaves a sour taste in my mouth. I think the PBGT is not involved in this transfer and the only guarantee we have is the "full faith and credit" of Prudential. ...

Yes. I'm not sure if this is exactly what happened with your plan, but it does seem that a company can terminate its future responsibility by purchasing an annuity for you. Of course, annuity companies also have some protections, whether these are better than the PBGC I don't know, but I'd assume roughly equivalent.

There may be one advantage to a company that sells annuities - I think they also sell life insurance, so every life insurance policy ought to provide some hedge against every annuity they sell. Seems to me that is a near perfect hedge against inflation and longevity, and they collect the premiums on both sides.

FAQs - Insured Plans & Benefits at Pension Benefit Guaranty Corp

Q: How can an employer terminate a pension plan?

A: There are two ways an employer can terminate its pension plan.

Standard Termination

The employer can end the plan in a standard termination but only after showing PBGC that the plan has enough money to pay all benefits owed to participants. Your plan must either:

purchase an annuity from an insurance company (which will provide you with lifetime benefits when you retire) or,

if your plan allows, issue a lump-sum payment that covers your entire benefit. Before purchasing your annuity, your plan administrator must give you an advance notice that identifies the insurance company (or companies) that your employer may select to provide the annuity. PBGC's guarantee ends when your employer purchases your annuity or gives you the lump-sum payment.

-ERD50

 

[JOHNNIE36]

Johnnie, did they eliminate all health care for retirees, or just move Medicare eligible retirees off their plan and onto Medicare?

When I joined the ranks as a retiree, we still enjoyed company provided health care with BCBS and we paid a modest monthly premium. That coverage included dental and vision and prescription drugs. As time went on, those monthly premiums went up and included copays and deductibles. When I reached 65 the coverage changed from total BCBS to Medicare and the supplemental policy provided by BCBS. The premium for the supplemental policy came out of our pension checks. Still included dental and vision and these benefits reduced over time and then in 2008 all supplemental benefits were eliminated and replaced by a monthly benefit of $300 added onto my pension. At presentations provided to all salaried retirees across the country, I take it that the $300/month was across the board and equal to all salaried retirees. The thinking was you should be able to buy a decent HI policy for $3600 per year. Maybe not a bad deal but a far cry from "free" health care for life as we were all led to believe in the beginning.