Your Pension Plan

[Alan]

Alan, it was taken over by Prudential. No GM or PBGC involvement, liability, etc. It's all on Prudential.

Cool, I would be happy with that arrangement.

 

[jollystomper]

While I have the utmost confidence my pension plan and its sponsor (one of my former employers), even if I didn't there probably wouldn't be much that I could do about it other than factor its stability into my planning. I've never been one to fret too much about things that I cannot control or influence.

+1

 

[rodi]

I have an unusual circumstance. My pension (long frozen, portable pension) is managed by the company that we spun off from. It was underfunded from before the time of the split... I read with dread, each year, as the funding percentage got worse over time. 79%...75%... 70% funding.... Ruh Roh.

While it was underfunded former employees could only roll out 1/2 of the lump sum - the other half remained as an annuity/pension payment. You had no choice if you wanted to pull out money.

The other company pumped in enough money that it's now funded fully. That's what I consider unusual... A success story for a pension. So if I wanted to roll out the lump sum, I could roll out the whole thing. At this point I'm letting it ride since it will provide a (very small) third leg of my 3 legged stool.

It definitely makes you nervous to see funding levels go down... and make you less nervous to see them recover.

 

[martyb]

I will have 2 pensions, both federal. One, I can begin anytime now, since I just reached age 55 last month, and have nearly 36 years time with my employer, Department of Defense (DoD). That is my federal employee pension. The other one (military reserves), I will begin at age 60, still 4 yrs, 11 months away. Both are (at least for now) COLA'd. There is some serious talk of tinkering with the formulation for the COLA's, so I expect that means a little less of a COLA in the future.

Nonetheless, even with the budget circus going on in DC right now, I suppose my pensions are relatively safe, in terms of at least being there in some form. I don't have SS to look forward to though (except possibly $200 or so), since I don't currently pay into SS, and as a federal employee, I'm affected by the WEP.

Wife has no pension, only 401k, and most likely we'll be using it to pay off a house when she retires in a few yrs. She's covered by survivor benefits of both my pensions, plus her own SS. With no mortgage, survivor's bens & her SS, plus life insurance, she will be ok. We don't lead extravagant lives.

 

[pb4uski]

Cool, I would be happy with that arrangement.

I wouldn't be happy. I would be ecstatic!

 

[JOHNNIE36]

Alan, thanks for your post on the GM pension "sale" to Prudential. It is a sale because GM purchased annuity for me and no longer has any ties to the pension program. I agree with other posters that I am better off under the Prudential plan than if GM was still funding the plan.

 

[Alan]

Alan, thanks for your post on the GM pension "sale" to Prudential. It is a sale because GM purchased annuity for me and no longer has any ties to the pension program. I agree with other posters that I am better off under the Prudential plan than if GM was still funding the plan.

You're welcome. I have 4 private pensions, all dependent on my ex-companies to keep them funded. 2 of them are in the UK which has a similar insurance scheme to the PBGC.

 

[BLS53]

Having PBGC cover federal pensions would be redundant wouldn't it? As I understand it, PGBC is run by the federal government. The only thing that would result in a loss of federal pensions, would be failure of the government. I imagine PBGC, along with every other government entity would cease to exist at that point. I doubt that the Chinese, or whatever flag we end up under, is going to honor such obligations, PBGC or otherwise.

 

[ERD50]

Having PBGC cover federal pensions would be redundant wouldn't it? As I understand it, PGBC is run by the federal government. The only thing that would result in a loss of federal pensions, would be failure of the government. I imagine PBGC, along with every other government entity would cease to exist at that point. I doubt that the Chinese, or whatever flag we end up under, is going to honor such obligations, PBGC or otherwise.

For feds pensions, it would be sort of redundant - but just to be clear ...

Yes, PBGC is run by the govt, but the funding comes from the private pensions themselves. Basically, the companies are paying insurance premiums to PBGC, an annual $ amount per employee in the program, and maybe some other factors (details are on the site). And the laws of economics would tell us that the employees are effectively paying some/all of that from salary they would have received otherwise.

So there has been no 'government bailout' of any PBGC secured pension (to date), the money comes from the sum of the insurance payments. Now, if push came to shove, and the PBGC ran out of funds, there might be a bailout talk in the future, but who knows?

I suppose the Fed could set up a similar plan, but it probably doesn't make much economic sense - it would just be 'compartmentalizing' the money (there might be some mental advantage/transparency to that). But I think it makes a LOT of sense for other municipalities. The PBGC would have forced them to maintain funding, and that would have averted some of the kick-the-can non-antics that places like IL have taken. There would be more transparency if constituents had to fund these at those levels (and, I think that would have led to some push-back against the pensions that offer much more than most private pensions). And the pensioners deserve some backing for the promise that was made.

-ERD50

 

[ziggy29]

Having PBGC cover federal pensions would be redundant wouldn't it? As I understand it, PGBC is run by the federal government. The only thing that would result in a loss of federal pensions, would be failure of the government. I imagine PBGC, along with every other government entity would cease to exist at that point. I doubt that the Chinese, or whatever flag we end up under, is going to honor such obligations, PBGC or otherwise.

Sort of, but it can be a "shell game" like Social Security where the left hand takes from the right hand, so to speak -- you've just shifted where the money is. Still, if we reached the point where entities like PBGC, FDIC and even Social Security can't be backstopped, they would be among the least of our concerns.

 

[BLS53]

Sort of, but it can be a "shell game" like Social Security where the left hand takes from the right hand, so to speak -- you've just shifted where the money is. Still, if we reached the point where entities like PBGC, FDIC and even Social Security can't be backstopped, they would be among the least of our concerns.

Yeah, that's the point that the anti-entitlement crowd doesn't seem to understand. If it gets to the point checks can't be mailed out, there isn't going to much of the nation left anyway. It's a lot more complicated than an airline finding a friendly bankruptcy judge to void their pension obligations.

 

[jazz4cash]

Alan, it was taken over by Prudential. No GM or PBGC involvement, liability, etc. It's all on Prudential.

http://www.pionline.com/article/20120822/REG/120819895

GM transferred $29B to Prudential to cover $26B in obligations. Basically they purchased an annuity from Pru to cover thier obligation! The transfer to Prudential was done to clean up GM's books post BK. Having such a large variable liability on the books was bad for the new GM stock. I have a friend that is a GM retiree and they got an option to take a lump sum if they were uncomfortable with the change to Prudential. I think the lump sum would be more attractive if GM was going to carry the obligation.

 

[Alan]

Jazz4, SumDay - thanks for the info on GM and Prudential

 

[JOHNNIE36]

http://www.pionline.com/article/20120822/REG/120819895

GM transferred $29B to Prudential to cover $26B in obligations. Basically they purchased an annuity from Pru to cover thier obligation! The transfer to Prudential was done to clean up GM's books post BK. Having such a large variable liability on the books was bad for the new GM stock. I have a friend that is a GM retiree and they got an option to take a lump sum if they were uncomfortable with the change to Prudential. I think the lump sum would be more attractive if GM was going to carry the obligation.

The lump sum distributions were only available depending on your retirement date. I was not eligible because I retired in 1988 and I think you had to retire after to 2000 in order to be offered the lump sum. Don't remember the details.

 

[jazz4cash]

The lump sum distributions were only available depending on your retirement date. I was not eligible because I retired in 1988 and I think you had to retire after to 2000 in order to be offered the lump sum. Don't remember the details.

Sounds about right.....I do know some GM retirees that did not get the option.

Reviewing the link on the GM / Prudential deal, it was widely viewed as a way for large pension plans to get out from under the burden of maintaining a DB plan. Probably not the first time it's been done that way but I think maybe it was one of the larger deals. Newer retirees would presumably have a longer benefit period making them better candidates to be annuitized. I can't think of any downside to an annuity if someone else is buying it for me.

 

[Meadbh]

Last weekend I met up with a friend who recently lost his (pensionable) job in the healthcare system because of some politics. He has 3 years to go until he is entitled to a full pension and the calculation places a lot of weight on the latter years of earnings. He is having difficulty finding employment. Looks like he will be left with a significantly lower pension than he had planned for, and a longer time to make it last.

Sometimes I think it is better to be responsible for your own financial future.....

 

[REWahoo]

Sometimes I think it is better to be responsible for your own financial future.....

+1

Including having the knowledge to manage your own investments - or to at least be able to verify your financial advisor isn't taking you to the cleaners...

 

[Surewhitey]

Sometimes I think it is better to be responsible for your own financial future.....

Same here.

DW will get a small pension in addition to SS and 401k savings. I'll call the pension a cushion and not expect it to last forever...kind of like SS, ugh!

 

[youbet]

Last weekend I met up with a friend who recently lost his (pensionable) job in the healthcare system because of some politics. He has 3 years to go until he is entitled to a full pension and the calculation places a lot of weight on the latter years of earnings. He is having difficulty finding employment. Looks like he will be left with a significantly lower pension than he had planned for, and a longer time to make it last.

Sometimes I think it is better to be responsible for your own financial future.....

In the rules of the plans I'm familar with, being entitled to a "full pension" is usually an age thing given that you have a specified number (usually fairly low) years of service. At MegaCorp, I would receive a full pension at 65 years of age, 50% at 55 yo and a sliding scale inbetween. I was canned long before I was 65, so I'm waiting to start my pension so that its a "full pension."

In terms of weight of latter years of earnings, ours used the average of the last five years.

Depending on the details, your friend may not have lost the farm, depending on the details of his/her plan, his/her age and yrs of service, etc. Been there, done that. I've had to wait 7 yrs to be old enough for a full pension and, yes, it's smaller because MegaCorp snipped off my accumulation of seniority years right when things were looking good. Still, way better than not having the DBP pension, which current employees don't have.

More than folks who got snipped off a few years early like your friend and I, the folks who got screwed in the DBP pension era were folks who spent a 30 or 35 year career divided between several different companies, never building up a significant pension at any one.

As you say, it's better to be responsible for your own financial future but having a DBP pension doesn't preclude that. Folks on their game leave gov't service or MegaCorp (when they had DBP pensions) with a DBP pension, SS, a well funded 401k/403b, well funded IRA's and, of course, money in your non-deferred FIRE portfolio.

Sadly.... I didn't quite get all the buckets filled..... Still, the RE fun goes on, as I'm sure it will for your friend.

 

[Brett_Cameron]

The monthly statement for my pension from Megacorp states that the funds were paid from one or more of three annuities with three different insurance companies.

 

[eytonxav]

Alan, thanks for your post on the GM pension "sale" to Prudential. It is a sale because GM purchased annuity for me and no longer has any ties to the pension program. I agree with other posters that I am better off under the Prudential plan than if GM was still funding the plan.

My former mega-corp did this last year. I would point out that the PBGC fall back went out the window by virtue of the offload to Prudential, so you will not have that to fall back on should Prudential run into difficulties, although there "may" be some other state mandated annuity protections to help you sleep a little better.

When I retired from mega-corp in 2003, I had the option to take lump sum, various annuity schemes, or to mix and match lump sum and annuity. As I didn't trust mega-corp and given my pension was above PBGC threshold, I decided to take the lump sum. That said, if I had envisioned being in the interest rate environment we have now, I might have decided on taking the pension up to the PBGC limit and the rest in a lump sum. Oh well, we just have to make peace with whatever path we chose and hope for the best.