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Your Pension Plan
Old 02-13-2013, 08:20 PM   #1
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Your Pension Plan

One of my Google News "Alerts" is for Pension Plans, and The Pension Benefit Guaranty Corporation.
This is not meant to be advice, but just a heads up to be aware of the status of your plan, and what your options may be.
The PBGC operates in the red, by many billions of dollars and while it is not federally guaranteed, the general belief is that it would be supported, much in the same way that Fannie and Freddie have been saved by the government.
Despite the doubling of PBGC insurnce payments, the deficit has not been reduced, but continues to rise.

My concern comes from a number of different directions. Here in Illinois, Police, Fire and Teacher Pensions are so underfunded that no one will even discuss the subject. Similar Public pensions are in trouble throughout the country. Private pensions are similarly troubled.

Thusfar, pension problems have been minimized through liberal action by the PBGC to insure and pay off on most plans. Thusfar, a very few plans have been limited, with pensions under $50,000 being paid in full even after fund failure.

My concern comes from the more recent decisions and the hardening of the stand of the PBGC... first in allowing companies to default on plans in order to avoid or emerge from bankruptcy, and second, in some decisions that are being made to put some restrictions on plans.

In the most recent merger of US Airways and American, American was allowed to stop the existing plan, by honoring the full obligation to existing members. A little noticed part of the authorization was a change in the plan (by the IRS), to limit the ability of some members to opt for a lump sum payout.

While this is just one small example of possible future problems, a search for PBGC actions shows a large number of changes in plans, mitigating the original contracts.

In my own case, a year ago, one of my sons told me his Pension was 100% funded, and rated AAA or the equivalent. This year... not quite so sure, as funding had fallen, and the board of directors was being replaced.

The only reason I bring this up, is that I feel many are not aware of the stability of their pensions, or the future of the company that is providing the pension. I see many members incorporating their pensions in retirement plans.
By current law, and historically, Pension Funds have been among the safest ways to fund retirement. This will most likely continue in the future, but the thought is to understand the plan, to measure the safety, and to consider the possibility of a lump sum payout. More than that, though, to watch the legal decisions that are coming down with respect to changes in the rules of the game. Watching withdrawal rates is important, but so too, is incorporating planned funding from SS and Pensions. Trust, but verify.
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Old 02-13-2013, 08:21 PM   #2
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What is this "pension plan" that you speak of?
I should be so lucky......
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Old 02-13-2013, 08:36 PM   #3
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What is this "pension plan" that you speak of?
I should be so lucky......
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Old 02-13-2013, 08:55 PM   #4
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Originally Posted by imoldernu View Post
By current law, and historically, Pension Funds have been among the safest ways to fund retirement. This will most likely continue in the future
Do you have any data on this? My sense was that private pensions were never really safe, are a recent thing, and won't be around in the future.

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Trust, but verify.
what specifically do you suggest?
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Old 02-13-2013, 09:00 PM   #5
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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.
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Old 02-13-2013, 09:02 PM   #6
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what specifically do you suggest?
<mod edit> slogans, apparently.
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Old 02-13-2013, 09:06 PM   #7
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You are correct that we should be vigilant. I'm not sure what we can do though, other than devalue our pensions in our plans.

I'm not good enough at digging through the numbers to evaluate the risk. I recall from earlier discussions that the PBGC is asking for increases in the insurance payments from members, and if that doesn't happen it will end up needing even bigger increases down the line, until the fixes will cause real pain.


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My concern comes from a number of different directions. Here in Illinois, Police, Fire and Teacher Pensions are so underfunded that no one will even discuss the subject.
It's talked about plenty. Nothing is being done though. Our State Legislature seem to think passing bills to dictate a "Moment of Silence" in classrooms each morning is more urgent.


Quote:
In the most recent merger of US Airways and American, American was allowed to stop the existing plan, by honoring the full obligation to existing members. A little noticed part of the authorization was a change in the plan (by the IRS), to limit the ability of some members to opt for a lump sum payout.
I don't think a lump sum was an option for us anyway. It seems like a reasonable restriction to keep the PBGC fund intact. So maybe that's a good thing.

Quote:
In my own case, a year ago, one of my sons told me his Pension was 100% funded, and rated AAA or the equivalent. This year... not quite so sure, as funding had fallen, and the board of directors was being replaced.
I think PBGC requires 80% funding? So until they hit that, I don't there is anything anyone can do.

I'd say those with pensions with small municipal groups are more in danger. No PBGC, maybe no big tax base to draw on? And many of those are COLA'd - putting a much larger future burden on the funding. Our mega-corp closed the pension plan years ago, pension is non-COLA, so at some point (maybe already), the impact keeps dropping.

-ERD50
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Old 02-13-2013, 09:26 PM   #8
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Do you have any data on this? My sense was that private pensions were never really safe, are a recent thing, and won't be around in the future.

what specifically do you suggest?
I think the first thing would be to find out about the plan and the funding. If there's any doubt about the safety, perhaps to consider a lump sum distribution.
Long ago (for another reason), I did that and while I don't know specifics, the plan was later frozen, as the company declared bankruptcy.

The other part of this, is the change from the older thinking that a decent pension plan might offset other considerations about changing jobs. A neighbor who worked for Delphi, struggled through his last pre retirement years, only to be left with a degraded pension.

Another acquaintance was an older pilot for United, who still had a youngish family, but had planned to retire at age 60, with a $125K pension. Three years before he planned to retire, he built an $800K house, and was paying for three kids in good schools. When UA went belly up, his pension was taken over by the PBGC, and the payout was $45K/yr. He had no clue of the possibility of that happening.

You're surely right about there not being a lot of choice, but if the pension looks to be insecure, retirement planning should take that into consideration.
I do believe that the safety factor has changed substantially over the past 10 years. In Illinois, despite the insane underfunding of the state plans, no one has yet lost any of their promised pension dollars.
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Old 02-13-2013, 10:25 PM   #9
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Originally Posted by imoldernu View Post
I think the first thing would be to find out about the plan and the funding. If there's any doubt about the safety, perhaps to consider a lump sum distribution.
But I don't see how I'm in any position to evaluate the fund any better than the PBGC. The only docs I can request are the same public ones that are issued to all and that the PBGC has reviewed. In fact, I get a mailing each year. It sounds like good advice, but how does one act on it? Lump sum isn't an option for me, I guess it is one way to deal with it if available.

Quote:
Another acquaintance was an older pilot for United, who still had a youngish family, but had planned to retire at age 60, with a $125K pension. Three years before he planned to retire, he built an $800K house, and was paying for three kids in good schools. When UA went belly up, his pension was taken over by the PBGC, and the payout was $45K/yr. He had no clue of the possibility of that happening.
These pilots are a rather special case, due to forced retirement age limits and their high pensions. They got screwed, no question about it* (one posts to this forum), but I know there are PBGC limits (I'm below them) - why didn't he know?

Quote:
In Illinois, despite the insane underfunding of the state plans, no one has yet lost any of their promised pension dollars.
Barring a miracle, something's got to give. Stay tuned.

* Well, I suppose one could debate if the pilots could have made compromises that could have kept the company solvent, but I don't know the details to know if that was an issue or a possibility - just throwing it out there as I try to avoid 'absolutes' like 'no question'.

-ERD50
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Old 02-13-2013, 11:25 PM   #10
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Speaking from experience, being fully funded now does not mean you are fine 2 or three years from now.
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Old 02-14-2013, 06:40 AM   #11
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Originally Posted by ERD50 View Post

* Well, I suppose one could debate if the pilots could have made compromises that could have kept the company solvent, but I don't know the details to know if that was an issue or a possibility - just throwing it out there as I try to avoid 'absolutes' like 'no question'.

-ERD50
Point taken... Am slowly learning from wiser ER members, to take a few deep breaths before letting arrogance and ego force rash statements.
Not there yet.

On the subject of how much information is available on the pension plan itself... Yes... most plans are required to make disclosure of basic funding and options, however it is possible to learn more through deeper research.
This article presents a good overview of the Pension processes and goes into some depth on ways in which the individual can research and evaluate pension safety. While I have no personal financial interests in this, I do believe that if I were currently depending on a pension for my retirement, that I would spend a few minutes studying the information.

Is Your Defined-Benefit Pension Plan Safe?

(tiny print--- use readability)
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Old 02-14-2013, 07:00 AM   #12
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If there's any doubt about the safety, perhaps to consider a lump sum distribution.
Good point to consider if your pension plans allows a lump sum option. Who knows what will happen over the next 30 years or so to even the strongest of companies.
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Old 02-14-2013, 07:59 AM   #13
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Once upon a time there was a saying something like "so goes General Motors, so goes the country". Well, General Motors went to hell in a hand basket. Where is the country going? I am one of the lucky ones that retired from GM under a defined benefit plan. Not only is that plan no longer offered by GM but the entire pension plan and it's funding was sold (?) to and taken over by Prudential. After 34 years with GM I think I am better off under the Prudential umbrella.
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Old 02-14-2013, 07:59 AM   #14
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I'm confused. I thought state and local governments didn't participate in PBGC. I don't think federal government pension plans are backed by it.
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Old 02-14-2013, 08:04 AM   #15
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I retired in 2011, and my former "pension" was frozen in 1994, so it wasn't much. Doubts about future security of the Megacorp plan was just one of the reasons (not the main reason though) I took a lump sum (fortunately I had that option)...problem solved IMO.
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Old 02-14-2013, 08:10 AM   #16
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Which is why, when DH was offered a lump sum cash-out, or a transfer of his pension account to a private insurer, we took the lump sum. PBGC is underwater, and if you retired early, as DH did, your "guaranteed" benefit is incredibly low.

I suspect mine will go "poof" in the next few years. And it was frozen about 6 years ago, so it's not like we'll be doing much more than buying a few groceries with it every month anyway.

Companies are off-loading their pension liabilities to private insurers, and you'll see more of these offers, just as Ford, GM, and Verizon did last year. It's coming.

Aon was quoted in this article yesterday:

http://www.plansponsor.com/DB_LumpSu...e_in_2013.aspx

Quote:
More employers plan to decrease their pension risk exposure by offering participants a one-time, lump-sum pension payout in 2013.



Aon Hewitt surveyed 230 U.S. employers with defined benefit (DB) plans, representing nearly five million employees, and found more than one-third (39%) are somewhat or very likely to offer terminated vested participants and/or retirees a lump-sum payout during a specified period in 2013. Just 7% of DB plan sponsors added a lump-sum window for terminated vested participants and/or retirees in 2012.
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Old 02-14-2013, 08:22 AM   #17
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OP, I understand the message and I do my part to inform my fellow coworkers about the unstated risk of pension plan solvency and rule changes that can happen years or decades in the future. I plan on cashing out of the pension plan as soon as I quit, since I doubt the plan will be as good in 30 years as it is today. And the COLA adjustment is apparently set by the elected officials in my jurisdiction. One would be crazy to trust political fiat for their financial future.

I just wish I could totally opt out of the pension plan and instead divert my pension plan contributions to my 401k or some other plan. Not to mention the huge employer match that gets dumped into the pension plan that I will never get to benefit from.
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Old 02-14-2013, 09:51 AM   #18
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I also recently read, perhaps here, that pension plans are being pinched by the low interest rate environment.

I have a small pension (no longer with the employer) worth about $27k (if taking lump sum next month). It's backed by BIG BIG oil, but perhaps I should rollover to an IRA soon. I felt that one day I may return, and having left the pension in place would help with negotiation for my time into the new plan, but a return is unlikely....
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Old 02-14-2013, 09:53 AM   #19
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Once upon a time there was a saying something like "so goes General Motors, so goes the country". Well, General Motors went to hell in a hand basket. Where is the country going? I am one of the lucky ones that retired from GM under a defined benefit plan. Not only is that plan no longer offered by GM but the entire pension plan and it's funding was sold (?) to and taken over by Prudential. After 34 years with GM I think I am better off under the Prudential umbrella.
Is it taken over by Prudential, or just managed by them? If you get an annual statement on the funding then it may be just managed by Prudential. I ask because that is what my ex-employer did. My monthly check and annual 1099-R comes from Prudential so it looks like a Prudential annuity (I think, but I don't have any annuities so I'm not sure how a 1099-R compares). Box 7 has code 2 - "Early Distribution, exception applies". However, I do get an annual statement from my ex-employer showing the funding level. (Employer abandoned the plan, converting everyone to cash balance a couple of years after I ER'ed)
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Old 02-14-2013, 10:11 AM   #20
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I took my pension (non-cola, with 1/2 to surviving spouse) as a lump sum distribution. Now it's between me and Vanguard. So far, so good!
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