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PBGC Broke - Who will pay your pension?
Old 07-24-2012, 02:27 PM   #1
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PBGC Broke - Who will pay your pension?

With assets of about $80 billion and liabilities (already) of more than $100 billion, the Pension Benefit Guaranty Corporation is essentially broke.
There are no regulations that cover this, and no current obligation to fund new pensions out of the General Fund. Current payouts are being paid from the assets of failed funds... in essence borrowing from Peter to pay Paul.

I have scanned some of the threads about pensions, and may have missed the answer to this.

I keep a Google watch on "Pensions" and hardly a day goes by when some new corporations are not added to the failed pension fund list. At the same time, I can't find anything from the media, or the government that provides an answer to "Who will pay your pension?" It's the 800 pound gorilla in the room, that no one can see.

The second (implied) part of the question is... "Why aren't more people concerned about this, when looking to the future?" Not just the people who are expecting to receive pensions, but those who are already receiving pensions. The total number of pensions involved (current and future) total 1.3 million.

Public Sector Pensions are not involved here... a subject for another day.

Pension Benefit Guaranty Corporation - Wikipedia, the free encyclopedia

Have I missed something?
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Old 07-24-2012, 02:35 PM   #2
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I don't have a pension so one less thing I have to worry about.
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Old 07-24-2012, 02:55 PM   #3
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It concerns me.

I have 2 small, frozen, pensions. Folks who started earlier than me - who had bigger pensions when they were frozen, seem oblivious to it. The income doesn't make/break my retirement budget plans - but it's enough to consider. (Together they add up to just under $500/month). It will impact the quality of life stuff (travel, eating out) if the pensions aren't there. Pension obligations are owned by another company - due to a corporate split a year or two ago.

Oh - and the pensions are underfunded and therefore under restrictions on withdrawal and the company that owns them does not seem interested in funding them.
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Old 07-24-2012, 02:56 PM   #4
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Interesting and very relevant. I've got to run, so no time now to look it up, but...

As I understand it, if the PBGC takes over a failed pension, there is most likely quite a bit of money in the fund at that time. I don't think they wait until it hits zero before they step in. So they only need to pay out a percentage to cover the shortfall.

Plus, they have money coming in from all the current pensions - there is essentially an insurance premium that is paid annually for every pension. So there is money coming in to offset outflows.

But I'd be very interested in a more detailed analysis of assets/liabilities and income/outflow. Any analysis is going to have to include some guestimate of the number and depth of future pension shortfalls though. So there is some speculation involved. The last time I looked at this, it didn't seem too scary, but it is a concern. Seemed to me that if they raised the premiums a small amount now, they would be in good shape. But it seems we always wait for a crisis, and then it is difficult and painful.

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Old 07-24-2012, 04:02 PM   #5
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This is a topic that worries me. I have a pension from a good sized corporation and while it isn't big (impossible to define size without an actual dollar amount) I live off it. I haven't touched any investments other than to pay off my mortgage and that was a rather small amount from my 401k, the rest was from cash. My investments have not been raided but are lower than when I retired 5 years ago due to the market and me being out when it was recovering. At the present pace I see no reason to tap investments except for unexpected or large expenditures like a new roof, a well pump may stress the cash account right now, most stuff here is still fairly new (13 years) so I don't see any big expenditures any time soon other than a roof in a few years, the roof is supposed to be a problem. My point is without the pension I would be relying upon investments and SS, that would worry me. Though I should have enough to be ok, I'm very conservative and prefer to not have to spend much of the investments hoping to leave most of it to my sister. When I retired in 2007 this financial mess was poised to explode in 2-3 months. I was all set, good amount of investments (more than I have now see above!), a fair pension and SS at 62. This melt down was not something I planned for, who did?
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Old 07-24-2012, 04:12 PM   #6
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Just another reason to take a lump sum instead of a "pension." If nothing else, split the funds into several quality SPIA's vs a pension.

I took a lump sum 12 months ago, though my frozen pension was relatively small, about 7% of net worth. If all goes well I won't ever buy a SPIA either, but it's a viable plan B option if needed...
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Old 07-24-2012, 04:35 PM   #7
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Quote:
Originally Posted by Midpack View Post
Just another reason to take a lump sum instead of a "pension." If nothing else, split the funds into several quality SPIA's, not a pension.
Lump sum options are frequently not available. That's the case with my private pension. It's annuity or nothing. Younger folks at my corp were switched to a cash balance type pension which did have a lump sum option. But even with the cash balance pension, the amount of the lump sum is constrained by the funding level of the pension fund. Currently they are only allowed to withdraw 50%.

Having pointed that out, I do agree with you. If a lump sum option is available, I'd give it a good look.
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Old 07-24-2012, 04:51 PM   #8
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Yeah my defined benefit pension is not available in any form other than a monthly annuity. I'd jump at the chance to take a lump sum. That'd eliminate this issue.
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Old 07-24-2012, 04:53 PM   #9
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Private pensions make up about 70% of our spending, but I don't worry about it. I gave up worrying when I retired. The pensions are not COLA'ed so the longer they survive the less significant they become.
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Old 07-24-2012, 04:55 PM   #10
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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.

My gut has always been to grab the lump sum at the first opportunity - bird in the hand type of thing. But the math says that's a non-starter.

Oh - and it's underfunded - so I can only get my hands on half of the lump sum - the other half has to be paid out as pension... I'm hoping (without much optimism) they'll fund it up to the 80% level to remove the restrictions, before I need to withdraw it.
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Old 07-24-2012, 05:24 PM   #11
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This thread has the tone of yet another bubble popping in the economy.

If the PBGC can't pay, that implies a lot of claims based on many corp's going belly up, pension funds shot and no longer paying and, of course, the PBGC no longer able to collect much in the way of premiums.

What a deal. An economic implosion based on zillions of retirees no longer having a pension to spend after their corporation failed...... I hope it works out some other way.....
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Old 07-24-2012, 05:38 PM   #12
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PBGC isn't a pension fund, it is pension insurance. Like other insurance products, it will need to raise the premium until fully able to meet future liabilities.
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Old 07-24-2012, 05:48 PM   #13
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I put "possible failure of the PBGC" on my "things I can't do anything about" list.
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Old 07-24-2012, 05:52 PM   #14
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I always looked at our pension and social security as promises.

So, we took a partial lump sum and an annuity on DH's pension plan. (a full withdrawal was not available).

Currently our pension pays for our discretionary expenses. If it goes away, no big deal. I figure we'll get at least something from social security (for planning purposes, I calculated half).

I planned on the possibility of those promises not being kept. We'll be fine.
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Old 07-24-2012, 06:57 PM   #15
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Anyone planning on receiving a pension, public, private or PBGC should be aware a promise can be broken, in particular when there is not an ability to pay. I am eligible for a PBGC max pension, not collecting for another decade or more, so I assume it may be clipped at some point in time. I don't worry about it much since I assume if SS gets means tested down the road, losing a pension will be partially offset by my SS benefits which are less likely to be be reduced via means testing if I have no pension.
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Old 07-24-2012, 07:53 PM   #16
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Quote:
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PBGC isn't a pension fund, it is pension insurance. Like other insurance products, it will need to raise the premium until fully able to meet future liabilities.
Yes, but if I read this correctly, they don't have that power ( a few snippets - the last paragraph is what I think addresses their ability to raise premiums - note the word 'proposed'):

Director's Message

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Providing Security, Today and Tomorrow

We currently protect the retirement hopes of nearly 44 million participants in more than 27,000 ongoing pension plans. When a PBGC-insured plan cannot keep its pension promises, PBGC makes sure the plans participants get their benefits, up to the limits of federal pension law.

... One doesnt need to be an expert to see that such plans, and retirement security generally, are in trouble.


... In the past year, as a result of additional failures, the financial deficit of our multiemployer program increased sharply, from $1.4 billion last year to $2.8 billion as of September 30, 2011. .... PBGCs total obligations rose to nearly $107 billion. Although our investment assets increased as well, overall our net deficit rose from $23 billion at the end of FY 2010 to $26 billion this fiscal year.

Since our obligations are paid out over decades, we have sufficient funds to pay benefits for the foreseeable future.

Nonetheless, PBGCs obligations are clearly greater than its resources. We cannot ignore PBGCs future financial condition any more than we would that of the pension plans we insure.

To meet these challenges in a way that both preserves pensions and PBGCs ability to insure them, the Administration proposed to give the PBGC Board authority more consistent with other Federal insurance programs to set PBGCs premiums. Premiums would be fairer, and take into account risks that different plan sponsors pose to their retirees and to PBGC. This would replace the current system, which forces sound companies to pay for others that are not and charges the highest premiums when plans can least afford them. Without such action, the PBGCs deficit will increase and we may face, for the first time, the need for taxpayer funds.
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Old 07-25-2012, 01:26 AM   #17
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The pension we will get is currently 100 percent funded with no cola. It's not as grand as other pensions we have heard about. Perhaps it was a blessing we didn't see coming. Less is more ? Ha...
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Old 07-25-2012, 07:12 AM   #18
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My former company froze its pension for younger employees back in 2002 while grandfathering in the older ones. I did not qualify for the grandfathering so mine was frozen. At the same time, it created a substitute cash-balance program for those who got their pensions frozen as well as for new hires although a few years alter the cash-balance program was ended for new hires while continued for existing ones (such as myself). I can eventually take the cash balance as a lump sum but can't take the pension that way.

Because I ERed in 2008, my cash balance amount is small but does grow a little bit each year due to interest credits. It is not a very large amount, though (low 5-figures).

I receive an annual report with total pension fund balances although I do not really know how healthy it is. But given that the pension program was frozen and ended (for new hires) its long-term outlook is probably better in the long term. What I do not know is if the cash balance accounts are funded from the same source (they probably are).

The pension is one of my "reinforcements" awaiting me when I enter my 60s. SS, one of the others, may be a little wobbly because of political and financial risk. This one has its own degree of uncertainty, too.
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Old 07-25-2012, 08:22 AM   #19
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What's a pension? ...
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Old 07-25-2012, 08:35 AM   #20
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FAQs - Insured Plans & Benefits at Pension Benefit Guaranty Corp

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PBGC receives no funds from general tax revenues. Operations are financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income, assets from pension plans trusteed by PBGC, and recoveries from the companies formerly responsible for the plans.

PBGC pays monthly retirement benefits, up to a guaranteed maximum, to nearly 744,000 retirees in 4,000 pension plans that ended. Including those who have not yet retired and participants in multiemployer plans receiving financial assistance, PBGC is responsible for the current and future pensions of about 1,476,000 people. You can find out if your pension plan is insured by searching our single-employer list or our multiemployer list of defined benefit pension plans.
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