PBGC Broke - Who will pay your pension?

[imoldernu]

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?

 

[73ss454]

I don't have a pension so one less thing I have to worry about.

 

[rodi]

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.

 

[ERD50]

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.

-ERD50

 

[veremchuka]

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?

 

[Midpack]

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...

 

[youbet]

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.

 

[veremchuka]

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.

 

[Alan]

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.

 

[rodi]

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.

 

[youbet]

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.....

 

[MichaelB]

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.

 

[Bestwifeever]

I put "possible failure of the PBGC" on my "things I can't do anything about" list.

 

[bbbamI]

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.

 

[Shanky]

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.

 

[ERD50]

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

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 plan’s participants get their benefits, up to the limits of federal pension law.

... One doesn’t 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. .... PBGC’s 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, PBGC’s obligations are clearly greater than its resources. We cannot ignore PBGC’s 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 PBGC’s ability to insure them, the Administration proposed to give the PBGC Board authority more consistent with other Federal insurance programs to set PBGC’s 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 PBGC’s deficit will increase and we may face, for the first time, the need for taxpayer funds.

-ERD50

 

[Notmuchlonger]

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...

 

[scrabbler1]

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.

 

[rescueme]

What's a pension? ...

 

[imoldernu]

FAQs - Insured Plans & Benefits at Pension Benefit Guaranty Corp

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.

 

[Midpack]

What's a pension? ...

I had one until 1994 when it was frozen by prior Megacorp, so it didn't amount to much by the time I retired in 2011. I assume many of our generation started their careers with pensions, but fewer have ended careers with them. A blessing in disguise for me at least...

 

[eytonxav]

When I left mega corp in 2003, I had the option to take a lump sum, annuity or a combination there of. My pension was above the PBGC coverage limit, and therefore decided on lump sum. Also, even back then, I did not have complete faith that I could rely on the PBGC for the remainder of my life if I chose partial annuity.

 

[ziggy29]

I assume many of our generation started their careers with pensions, but fewer have ended careers with them.

Guilty. In any event, my pension will probably be no more than 15-20% of our living expenses by the time I take it and it doesn't have a COLA, so it isn't a make or break thing for us.

 

[imoldernu]

There's quite a bit more to the whole pension plan problem than meets the eye.

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?

Help with this invited... As far as I can determine :

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.

... but I'm not sure.

So, how did we get into this mess of underfunded pensions in the first place?

Here's what a friend who was a Pension Trustee told me. Right? wrong?... i don't know, but it made sense to me.
.........................................................................
In the early 1980's almost all pension funds were fully funded. The interest rates were high... over 10%... but the pension plans had been established to fund at much lower rates... (safe rates in triple A investments) With the rapid increase in interest, the Pension Funds, suddenly became Overfunded. The parent companies (who were funding the Plans...) decided that the extra monies really belonged to the stock holders, so they revised the plans and based future returns on the current (perhaps 8%) interest being earned. The surplus was allowed to be taken from the plans and meted out to stockholders , (and company officers as bonuses).
Basically this was well and good. The Retirement Funds were healthy, fully funded, and functioning as planned.

That's where it broke down though, because as interest rates and ROI's turned downward, the pension plans were not adjusted. In other words, the Trustees did not adjust, using the logic that the lowere rates were just temporary, and would eventually go back up... Whoever the regulators are/were... were ok with that, and the plans were allowed to go forward.

... Until... the total funding dropped drastically... ( add in here some regulations established by Congress for Pension Fund Holidays... Years when the companies were allowed to stop paying in to the plans... presumably to help the economy, and help the "job creators".

By the time the public became aware of the Pension Plan troubles, the plans were in deep trouble. In stead of forcing the corporations to "catch up" with the underfunding, a different tact was allowed....

Instead of investing in triple A entities, the funds were allowed to go to high return, riskier investments... Hedge Funds, Credit Default Swaps etc... which on paper showed much higher returns. If these investments were "safe", all would have been well. Since 2008, the Trillions of dollars of losses in these funds have left most Pension Funds in deep trouble... Bringing us to Today.

....................................................
That's my story, and i'm sticking to it...

Until someone here, can straighten me out...

BTW... still not sure about who rules on Pension Plan Safety... Who has direct oversight. I looked on the internet, but had trouble finding a good answer.

 

[MichaelB]

There's quite a bit more to the whole pension plan problem than meets the eye.

./.

So, how did we get into this mess of underfunded pensions in the first place?

Was your question about PCGC answered?

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

http://www.early-retirement.org/for...ave-their-pension-payments-reduced-59942.html
http://www.early-retirement.org/forums/f28/how-is-the-health-of-your-pension-59206.html
http://www.early-retirement.org/forums/f28/funding-percentage-of-a-pension-fund-62127.html
http://www.early-retirement.org/for...-for-pension-transfers-to-insurers-61742.html