Underfunded pensions? Anyone here have their pension payments reduced?

[Frugalityisthenewblack]

This is sad. So much worry to pensioners that should instead be enjoying a worry free retirement.

Newpage pensions severely underfunded - Atlantic Business - Cape Breton Post

 

[Midpack]

And Canada no less. Unfortunately we're probably going to see more stories like this in the years ahead. Another reason I took a lump sum 7 months ago instead of a pension, bird in hand. Even though I have neither and I hope my fears are completely unfounded, pensions and annuities may not be quite as bulletproof as people assume in the years ahead. YMMV

 

[ripper1]

I see a revolution on the horizon.

 

[justplainbll]

I knew people from NY Dock Company and Franklin National Bank who lost their pensions.

 

[kz]

Yes. Wisconsin Retirement System is set up quite differently than most others. Those invested in the core funds will see -4 to -4.5% this yr while the variable fund investors will see -8%. We've been thru this for the last couple years so we just reduce our expenses and live with it. Technically it only affects Dh's pension since mine is set up differently.

 

[ERD50]

I knew people from NY Dock Company and Franklin National Bank who lost their pensions.

Can you explain this? As I understand it, private pensions are insured by the PBGC, and only 'high income' pensioners will see a reduction (not loss) of their pension.

-ERD50

 

[ERD50]

This is sad. So much worry to pensioners that should instead be enjoying a worry free retirement.

Newpage pensions severely underfunded - Atlantic Business - Cape Breton Post

From that article:

the disturbing news that their pension funds are underfunded by up to 41 per cent

Hmmmm, does that mean they are at least 59% funded? That would be good news for the Illinois Teachers Retirement fund (~43% funding IIRC)!

-ERD50

 

[Chuckanut]

Read "Retirement Heist' which documents how companies were able to drain pension funds and use them for other purposes and then, a few years later, management cried about their pension system being "underfunded'. Oh, for some strange reason, the executive pension systems never had their assets drained off. I wonder why?

 

[Alan]

Can you explain this? As I understand it, private pensions are insured by the PBGC, and only 'high income' pensioners will see a reduction (not loss) of their pension.

-ERD50

I believe PBGC takes over the fund when it drops to 70% so I don't understand what happened here either.

 

[Spanky]

Read "Retirement Heist' which documents how companies were able to drain pension funds and use them for other purposes and then, a few years later, management cried about their pension system being "underfunded'. Oh, for some strange reason, the executive pension systems never had their assets drained off. I wonder why?

They (management) simply diverts the benefits intended for employees into their own pockets.

 

[ERD50]

Read "Retirement Heist' which documents how companies were able to drain pension funds and use them for other purposes and then, a few years later, management cried about their pension system being "underfunded'. Oh, for some strange reason, the executive pension systems never had their assets drained off. I wonder why?

They (management) simply diverts the benefits intended for employees into their own pockets.

We discussed that book in a thread a while back. The characterizations you apply do not seem accurate to me.

As I recall from that thread, every one of those employees received their full pension. 100% (possible exception for 'high earners'?). There may have been some accounting tricks to call the fund 'over-funded' so they could move funds from there for other purposes, but they paid the benefits.

In the US, if a private pension becomes underfunded below PBGC limits, actions are taken, which can include being taken over by the PBGC and payments are made from the 'insurance' payments that all US private pension systems pay into. No tax dollars are used (I'm assuming the fees cover admin also, but I don't know that).

Apparently, for public pensions, it was assumed the taxpayer would be the 'insurance'. It's looking like that is not always the case. Ironic that private pensions are required by the government to have insurance, but the government does not require that for govt pensions.

PS - be very careful with sloppy typos, 'pension' and spell-check


-ERD50

 

[okapi]

When my company was taken over they froze pensions.No they did not have money problems,big company.I lost half my pension because they said it was backended.Did not matter that I put in near 30years and was counting on it in a few years.Luckily for me I invested a lot and lived below my means.Held on a few more years and we got a severance package.Don"T hear much news or pols. talking about this "legal thievery".Read Pension Dumping.You"ll see what I mean.My company did not grandfather anyone in.Like the character 'Fox Mulder" on X- FILES use to say... "Trust No One".

 

[obgyn65]

I agree with ERD50. His explanations below are correct IMO.

In the US, if a private pension becomes underfunded below PBGC limits, actions are taken, which can include being taken over by the PBGC and payments are made from the 'insurance' payments that all US private pension systems pay into. No tax dollars are used

-ERD50

 

[Chuckanut]

We discussed that book in a thread a while back. The characterizations you apply do not seem accurate to me.

As I recall from that thread, <snip>

-ERD50

The book is much more authoritative than a thread. I suggest reading the book.

 

[justplainbll]

Can you explain this? As I understand it, private pensions are insured by the PBGC, and only 'high income' pensioners will see a reduction (not loss) of their pension.

-ERD50

They got the shaft prior to the establishment of the Pension Benefit Guaranty Corp. I seem to recall correctly some time ago the max pension payout was 25k per person per year. Franklin National bit the dust in either the late 60's or early 70's. NY Dock Company was taken over by the then Port of New York Authority.

 

[JOHNNIE36]

Interesting thread and posts. I googled General Motors pension fund and found an article from the Detroit News dated 1-12-12 which stated that GM's world wide pension liability is $122B and is underfunded by $22B which equates to 82% funding. The big discussion in the article is that GM's is considering offering buyouts to certain retirees, as this retirement fund debt is killing the company. It will be interesting to see where this discussion leads.

 

[pb4uski]

.....Oh, for some strange reason, the executive pension systems never had their assets drained off. I wonder why?

Your statement doesn't make much sense.

Most companies' non-qualified pensions, which would include executive pensions above ERISA limits, are unfunded so there are no assets that are dedicated to providing benefits like there are with qualified plans where pension assets are separate from company assets. Rabbi trusts are sometimes used, but even those are subject to creditor claims in bankruptcy.

 

[FinanceDude]

As I recall from that thread, every one of those employees received their full pension. 100% (possible exception for 'high earners'?). There may have been some accounting tricks to call the fund 'over-funded' so they could move funds from there for other purposes, but they paid the benefits.

The benefit were guaranteed by buying a policy from the insurer that guaranteed the benefits on an actuarial basis. This freed up the pension money "sitting there" for other purposes......

In the US, if a private pension becomes underfunded below PBGC limits, actions are taken, which can include being taken over by the PBGC and payments are made from the 'insurance' payments that all US private pension systems pay into. No tax dollars are used (I'm assuming the fees cover admin also, but I don't know that).

Maybe back in the old days that was true, but PBGC is very underfunded and they do have recourse to the Treasury/taxpayers if they get into trouble, so our tax dollars will be used if need be, much like FDIC........

Apparently, for public pensions, it was assumed the taxpayer would be the 'insurance'. It's looking like that is not always the case. Ironic that private pensions are required by the government to have insurance, but the government does not require that for govt pensions.

That's because the govt always has the "fall-back position" of Congress and the Treasury.......

 

[ERD50]

We discussed that book in a thread a while back. The characterizations you apply do not seem accurate to me.

As I recall from that thread,...

The book is much more authoritative than a thread. I suggest reading the book.

No thanks. I've read the facts about the PBGC, and the responses in that thread kept dancing around the fact that those people were paid their pensions. I don't care to waste my time with a sensationalist 'look what that big mean Corp did' designed to play to people who hate 'big mean Corps'. I like facts.



RE: I knew people from NY Dock Company and Franklin National Bank who lost their pensions.

They got the shaft prior to the establishment of the Pension Benefit Guaranty Corp. ... Franklin National bit the dust in either the late 60's or early 70's. NY Dock Company was taken over by the then Port of New York Authority.

OK, thanks for the explanation. Had to look it up, but PBGC went into effect in 1974/75.

When my company was taken over they froze pensions.No they did not have money problems,big company.I lost half my pension because they said it was backended.Did not matter that I put in near 30years and was counting on it in a few years. ...

Wording is important here. I don't understand how you could have 'lost half your pension' that you put in over 30 years (unless you were a high earner - max PBGC payout is $54,000 a year as of 2011). Perhaps they cut the formula for what you would earn going forward (which would not affect what was already earned)?

I'd sure like to know if my Corp pension is subject to being cut in half. Everything I read tells me that the PBGC would make me 100% whole regardless of company actions.

Like the character 'Fox Mulder" on X- FILES use to say... "Trust No One".

Good advice.

PS - is your space bar intermittent?

-ERD50

 

[ERD50]

Maybe back in the old days that was true, but PBGC is very underfunded and they do have recourse to the Treasury/taxpayers if they get into trouble, so our tax dollars will be used if need be, much like FDIC...

I skimmed their huge pdf - if I read it right, it looks like they pay out ~ $5.5B/year, take in $2.4B in premiums, and have $70B on hand.

So that's a pretty good cushion, unless of course pensions starting failing at a much higher rate. That's certainly possible, but it seems the PBGC could certainly raise their premiums w/o too much pain ($35/person and 0.9% of the unfunded %). Doubling or tripling wouldn't be a huge hardship. Increasing the underfunded fee would encourage better funding.

Unfortunately, The PBGC appears to be among the worst of the market timers:

In 2004, it chose to invest heavily in bonds.[6] Under new leadership, the agency in 2008 shifted a substantial portion of its assets into stocks.[7]

-ERD50

 

[pb4uski]

Wording is important here. I don't understand how you could have 'lost half your pension' that you put in over 30 years (unless you were a high earner - max PBGC payout is $54,000 a year as of 2011). Perhaps they cut the formula for what you would earn going forward (which would not affect what was already earned)?

I'd sure like to know if my Corp pension is subject to being cut in half. Everything I read tells me that the PBGC would make me 100% whole regardless of company actions. -ERD50

I think what okapi meant is that the benefit formula was skewed to later, pre-retirement years and they curtailed the plan so okapi's benefits were frozen at the base of the slope so the pensions benefit was half of what it would have been if the plan were not curtailed.

This can also happen with conversions of defined benefit plans to cash balance plans as well. The young don't suffer because they don't have a lot of pension credit built up and they have time on their side, these just about to retire are usually grandfathered or are close to maxing out on pension credits, but those 10 years from retirement get stuck with the worst of both worlds.

 

[cashbalancetrouble]

If you want to know the details of how, read the book. The companies learned how and did take money out of pensions through spin offs, mergers that allowed conversions of pension plans. I lost about 40% of my pension. I worked five years under a converted plan and earned no additional pension because the of the conversion method. These cases are still going thru the courts form 10+ years ago.

The 2006 Pension Protection Act corrected some of the stuff with conversions, but Congress would not address what happened prior saying that is up to the courts.

The PBGC does guarantee private pensions. The companies pay insurance for this and if the PBGC does not have enough money, yes the TAX payers kick in. But most earned pensions are larger than the PBGC guarantee so pensions are cut. This happened to the Airline employees and Steel workers at LTV / Republic Steel and others.

Today if you retire and can get a lump sum, it will be limited by the PBGC if the Plan is underfunded. So you will get a partial lump and a monthly benefit. Once the plan is properly funded you maybe able to get the remaining in a lump.

The executives used legal tricks to protect their executive plans, just like they dipped into pension plan funds for severance benefits and other non pension expenses.

Bottom line, pensions are a just promises that did not get kept always. The same is happening for the public plans.

Below is the maximum pension info from the PBGC.

PBGC Maximum Monthly Guarantees for 2012*
Age 2012 Straight-Life Annuity 2012 Joint and 50% Survivor Annuity**
65 $4,653.41 $4,188.07
64 $4,327.67 $3,894.90
63 $4,001.93 $3,601.74
62 $3,676.19 $3,308.57
61 $3,350.46 $3,015.41
60 $3,024.72 $2,722.25
59 $2,838.58 $2,554.72
58 $2,652.44 $2,387.20
57 $2,466.31 $2,219.68
56 $2,280.17 $2,052.15
55 $2,094.03 $1,884.63

 

[justplainbll]

If you want to know the details of how, read the book. The companies learned how and did take money out of pensions through spin offs, mergers that allowed conversions of pension plans. I lost about 40% of my pension. I worked five years under a converted plan and earned no additional pension because the of the conversion method. These cases are still going thru the courts form 10+ years ago.

The 2006 Pension Protection Act corrected some of the stuff with conversions, but Congress would not address what happened prior saying that is up to the courts.

The PBGC does guarantee private pensions. The companies pay insurance for this and if the PBGC does not have enough money, yes the TAX payers kick in. But most earned pensions are larger than the PBGC guarantee so pensions are cut. This happened to the Airline employees and Steel workers at LTV / Republic Steel and others.

Today if you retire and can get a lump sum, it will be limited by the PBGC if the Plan is underfunded. So you will get a partial lump and a monthly benefit. Once the plan is properly funded you maybe able to get the remaining in a lump.

The executives used legal tricks to protect their executive plans, just like they dipped into pension plan funds for severance benefits and other non pension expenses.

Bottom line, pensions are a just promises that did not get kept always. The same is happening for the public plans.

Below is the maximum pension info from the PBGC.

PBGC Maximum Monthly Guarantees for 2012*
Age 2012 Straight-Life Annuity 2012 Joint and 50% Survivor Annuity**
65 $4,653.41 $4,188.07
64 $4,327.67 $3,894.90
63 $4,001.93 $3,601.74
62 $3,676.19 $3,308.57
61 $3,350.46 $3,015.41
60 $3,024.72 $2,722.25
59 $2,838.58 $2,554.72
58 $2,652.44 $2,387.20
57 $2,466.31 $2,219.68
56 $2,280.17 $2,052.15
55 $2,094.03 $1,884.63

Thanks. Is the age the age at the time pension payments commenced (were first collected)?

 

[ERD50]

If you want to know the details of how, read the book.

Facts are better than nuanced 'details'. And that's a fact

The PBGC does guarantee private pensions. The companies pay insurance for this and if the PBGC does not have enough money, yes the TAX payers kick in.

FACT: The tax payers have never 'kicked in'. Yes, this might happen in the future, but that is speculation, and there isn't really any reason to think they would need to. Private pensions are becoming a thing of the past, the liability must be dropping, and they could raise the premiums if needed.

The PBGC is not funded by general tax revenues. Its funds come from four sources:

Insurance premiums paid by sponsors of defined benefit pension plans;
Assets held by the pension plans it takes over;
Recoveries of unfunded pension liabilities from plan sponsors' bankruptcy estates;[4] and
Investment income.

But most earned pensions are larger than the PBGC guarantee so pensions are cut. This happened to the Airline employees and Steel workers at LTV / Republic Steel and others.

I don't believe that your statement "most earned pensions are larger than the PBGC guarantee" is true. Only 'high earners' get cut. I'm guessing my Mega-Corp pension was pretty typical for someone starting in 1975 and working 28 years, my AFE was a bit above $100,000, and my pension at 65 YO will ~ $3,333/month (no inflation adjustment between now and then). I'd need a pension ~ 40% higher to even begin to be capped. While $100,000 probably doesn't put me in the 1% group, I doubt that 'most' private pensioners are getting 40% more than me. Yes, some pilots (high earners) were cut.

If you can provide a reference for 'most were cut', I'd like to see it. Or is this the kind of 'detail' that the book gave you? Maybe I should be more worried about my future pension than I am?


Beyond that, I think you are confusing 'cuts to benefits already earned' and 'cuts to the rate at which future benefits are earned'. The latter does happen, and it happened to me. The company simply renegotiated the benefits I earned in the future. Just like I renegotiated my salary every year. We both could take it or leave it, the past was not altered.

-ERD50

 

[okapi]

Yes pb4uski that is exactly what happened.You explained it much better than I could have.Thanks.