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PBGC insurance - 40% haircut per esplanner?
Old 10-27-2014, 02:13 PM   #1
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PBGC insurance - 40% haircut per esplanner?

Background for my question:
My former employer is offering a lump sum option on a pension frozen back int 2000. I've always been someone who researched the nuances, so former coworkers are emailing me with questions. One sent me the following article:

https://www.esplanner.com/case-studi...nsion-lump-sum

esplanner is usually a reliable source - but in the article they have an example of a guy who must decide between an annuity of $760/month ($9120/year) or $120k lump sum. They state the following:
Quote:
But were Bill's company and its pension fund to tank, the PBGC would pay only about 40 percent of what Bill would otherwise have received.
I went to the PBGC website and it mentions limits of $59k/year for pension payments on failed plans - but no where does it say that smaller pensions will get a haircut.

Did I miss something on the PBGC website - are all pensions given 40% haircut if the pension fund goes under - or just the larger pension payouts? (Those above $59k).

Thanks
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Old 10-27-2014, 06:17 PM   #2
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How old is Bill?

There is a fairly steep rolloff, based upon age, of the maximum PBGC guarantee.

EDIT:
Ok -- Bill is 60. The article is flawed. I would not expect Bill to take any haircut on his pension under current law.

Also, the rest of that article reads like a sales pitch for annuities. Perhaps esplanner is taking the low road and accepting paid advertising but offering it as "content". Either way, not good for esplanner.

-gauss
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Old 10-27-2014, 06:26 PM   #3
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You can quickly see the maximum here:

Maximum Monthly Annuity Guarantees, Pension Benefits

From how I understand it, I don't think a $750 payment would be reduced at all unless he is in his 20's or something......
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Old 10-27-2014, 07:46 PM   #4
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Quote:
Originally Posted by robertf57 View Post
You can quickly see the maximum here:

Maximum Monthly Annuity Guarantees, Pension Benefits

From how I understand it, I don't think a $750 payment would be reduced at all unless he is in his 20's or something......
+1. That is my understanding.
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Old 10-28-2014, 09:01 PM   #5
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PBGC Website

Posting the link to a current article concerning pension plan guarantees, not just for the information in the article, but to point up the source website.
Much information about pensions that could be important to those who are receiving pensions that have government guarantees.
PBGC Sends Financial Assistance to Struggling Multiemployer Plans
This article covers the amounts covered for some failed plans. Note the differential between promised and guaranteed at the higher pension levels.

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I missed this current post... this post belongs there.

PBGC insurance - 40% haircut per esplanner?
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Old 10-28-2014, 09:14 PM   #6
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We used to say that the mission of the "Pension Benefits Guarantee Board" is to "Guarantee that you don't receive pension benefits".

That's obviously an exaggeration, but they do use interesting math to reduce what they'll pay you. IIRC, they use:

The worst pension agreement you were covered under in the last five years.
Presume that you retired 2 (?) years before the plan is closed down, if that creates a further reduction.
Give you an "early retirement" penalty for anything before 65.
Etc.

It's hard to get the information in advance, but the actual numbers after a termination can be pretty chilling.
Exercise due diligence.
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Old 10-28-2014, 11:36 PM   #7
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Headline speaks for itself.
Multiemployer Insurance Program Deficit Threatens PBGC's Solvency

and this... as a follow up to the prediction:
http://www.pbgc.gov/news/press/relea...ce=govdelivery
Quote:
Unlike the agency's program for single-employer pensions, PBGC doesn't assume responsibility for insolvent multiemployer plans. Instead, the agency sends financial assistance so the plans can pay benefits at no more than the PBGC guarantee level.
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Old 10-30-2014, 01:56 PM   #8
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Interesting that the author of the article assumes "Bill" is paying $1000 a month in rent as a single guy in Birmingham AL. I don't think a person with that meager of a retirement income is going to be dropping a thousand on rent in Alabama.

Again, another economic journalist assuming high housing cost, based on their own limited experience in high cost locales.
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Old 10-30-2014, 02:18 PM   #9
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For anyone who was confused like me.... (I'm easily confused). Multi-employer plans are typically trade union plans... Eg Cement Workers of Scranton Pension. (A made up example - no idea if there is a cement worker union based in Scranton.) I downloaded the list from the pbgc site - and a quick glance indicated they were all tradesunion plans.

Single employer plans seem to be the megacorp plans that have gone the way of the dinasaur.
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