Pension Plan Gurus

[UncleHoney]

I got the financial report of my company pension plan today. Looking for a little guidance as to plan health. See anything alarming?

Basic Financial Statement

Benefits under the plan are provided through a trust fund. Plan expenses were $31,474,000. These expenses included $3,118,000 in administrative expenses and $28,356,000 in benefits paid to participants and beneficiaries. A total of 9,121 persons were participants in or beneficiaries of the plan at the end of the plan year, although not all of these persons had yet earned the right to receive benefits.

The value of plan assets, after subtracting liabilities of the plan, was $791,158,000 as of June 30, 2005, compared to $760,095,000 as of July 1, 2004. During the plan year the plan experienced an increase in its net assets of $31,063,000. This increase includes unrealized appreciation and depreciation in the value of plan assets; that is, the difference between the value of the plan's assets at the end of the year and the value of the assets at the beginning of the year or the cost of assets acquired during the year. The plan had total investment income of $62,537,000.

Minimum Funding Standards

An actuary's statement shows that enough money was contributed to the plan to keep it funded in accordance with the minimum funding standards of ERISA.

Ron

[Leonidas]

Seems…skimpy on details.

Looked at my plan’s report, it was 91 pages long.

Second thing I noticed, and I’m probably comparing apples to orangutans here, but that didn’t seem like a very big fund for the number of participants. Mine is a DB plan with 100% survivor payout, etc., etc., but here are the numbers from last year’s report:

Active duty employees: 5,225
Inactive (retired) members: 2,105
Total investments: $2,642,693,000
Total assets: $2,959,617,000
Total liabilities: $308,409,000
Net assets held in trust for retirees: $2,651,208,000

With those figures the fund was 60% funded.

Modified to add: Hmmmm...I might be doing a bad comparison. Read through some of your earlier posts and saw a mention that your pension is not adjusted for inflation. Also, most of my co-workers did/will retire in their mid-50's, and if the President signs a bill just passed, many of them will be eligible to retire and draw from IRA's and other plans as early as 50. Longer time in retirement I assume from your plan.

[UncleHoney]

This was just part of the report that I got in an email today. I have access to all the gory details, not that I would understand what I was looking at.

Our plan is available to all 55 and over (with reduced benefits below 65) and as you noted there is no inflation adjustment. (There have been some periodic adjustments made in the past, but the last one was 12 years ago)

The payout depends on how I want to take it, single, single plus 10, joint 100% survivor, joint 100% survivor plus 10. At 62 for me the range of payout is $2850-$3400/month. I think there is a lump sum payout to survivors in there somewhere too.

I don't know much about any other pension plans so was just curious.

Ron

[ats5g]

Originally Posted by UncleHoney

I got the financial report of my company pension plan today. Looking for a little guidance as to plan health. See anything alarming?

Basic Financial Statement

Benefits under the plan are provided through a trust fund. Plan expenses were $31,474,000. These expenses included $3,118,000 in administrative expenses and $28,356,000 in benefits paid to participants and beneficiaries. A total of 9,121 persons were participants in or beneficiaries of the plan at the end of the plan year, although not all of these persons had yet earned the right to receive benefits.

The value of plan assets, after subtracting liabilities of the plan, was $791,158,000 as of June 30, 2005, compared to $760,095,000 as of July 1, 2004. During the plan year the plan experienced an increase in its net assets of $31,063,000. This increase includes unrealized appreciation and depreciation in the value of plan assets; that is, the difference between the value of the plan's assets at the end of the year and the value of the assets at the beginning of the year or the cost of assets acquired during the year. The plan had total investment income of $62,537,000.

Minimum Funding Standards

An actuary's statement shows that enough money was contributed to the plan to keep it funded in accordance with the minimum funding standards of ERISA.

Ron

Ron,

What you really want to do is look at the "funding ratio" of the pension plan. The funding ratio is the market value of plan assets divided by the present value of projected benefit obligations. Generally, you want something up over 90%. A couple of years below 80% could spell trouble [bad assumptions, bad investment management, etc.], and you might want to consider taking a lump sum. You can find the funding ratio in your plans IRS Form 5500.

That one page summary you get emailed every year is more or less useless.

My pension is like yours, available at age 55, but reduced.

- Alec

[Leonidas]

Originally Posted by ats5g

What you really want to do is look at the "funding ratio" of the pension plan. The funding ratio is the market value of plan assets divided by the present value of projected benefit obligations. Generally, you want something up over 90%. A couple of years below 80% could spell trouble [bad assumptions, bad investment management, etc.], and you might want to consider taking a lump sum. You can find the funding ratio in your plans IRS Form 5500.

That's true, and I don't know to what extent the very recent changes in ERISA may have affected the reporting, but I remember that United Airlines was reporting to ERISA and the IRS that its pension plan was fully funded. When they liquidated the plan it turned out they were more like 50% funded. From what I read they were following the regulations, it was just a case of the law allowed them to make a lot of assumptions about what the plans assets were going to be worth in the future while also glossing over what current liabilities might really be. I think another important number to look at would be the discount rate the plan is using in determining future earnings on its current investments. I'm no expert on this, and I didn't even sleep in a Holiday Inn Express last night, but 4-5% is pretty safe and anything more than 8% gets to be dangerous.