Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Decision on Pension
Old 09-30-2014, 09:55 AM   #1
Recycles dryer sheets
 
Join Date: Feb 2011
Location: Arlington Heights
Posts: 271
Decision on Pension

Hi all.

I received notice from my old company that there are changes coming to my pension. Nothing stays the same I guess.

I am 58 and figured on taking pension sometime between 62 (~42k/yr) and 65 (~$52k/yr). I'm currently retired and have after tax funds to last to that age range.

The pension changes being communicated is the company is giving the pension responsibilities to Prudential Insurance. I have 3 choices:

1. Take a lump sum. I expect more details to come on this regarding how much that might be. But if I take this I need then to determine how to invest correctly e.g. annuity, balanced fund, CD's, combination of all, etc.

2. Begin taking the distribution now. I think this option is for those that may not be eligible for pension distribution yet. I am so it doesn't pertain to me.

3. Leave everything as is and let Prudential pay out when I want, sometime between 62 and 65. Where I have some hesitancy is that when the company has the pension it is guaranteed by PBGC. At prudential it is not.

In my plan the amount coming from pension (and SS) is my floor which covers most of my basic expenses. My other investments then cover discretionary investments. So I would like to continue having a safe vehicle that can cover the non-discretionary expenses.

For now (until I get more specific information regarding this change) what are peoples thoughts on Prudential having the pension and not being guaranteed by PBGC? Would I have much to worry about with just going with option #3?

Thanks,

Bob
SoReady is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 09-30-2014, 10:01 AM   #2
Recycles dryer sheets
 
Join Date: Jan 2014
Posts: 87
With Prudential you s/b ok. They're solid.
greydog17 is offline   Reply With Quote
Old 09-30-2014, 11:02 AM   #3
Recycles dryer sheets
robertf57's Avatar
 
Join Date: Jun 2014
Posts: 337
I think your reasoning is sound regarding the guaranteed floor through social security and pension (although if you have 5 million in investable assets, perhaps not). I personally am not to concerned about prudential; but I would want to see what the buyout offer actually is before making a decision.
robertf57 is offline   Reply With Quote
Old 09-30-2014, 12:09 PM   #4
Recycles dryer sheets
 
Join Date: Feb 2011
Location: Arlington Heights
Posts: 271
Thanks. I agree about getting the specifics first. They are supposed to be mailing that out today. I'm sure I'll be back here asking more questions if I become indecisive after that.

Bob
SoReady is offline   Reply With Quote
Old 09-30-2014, 02:19 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,263
Quote:
Originally Posted by greydog17 View Post
With Prudential you s/b ok. They're solid.
+1 I would rather have Prudential backing my pension than the PBGC.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 09-30-2014, 03:06 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 26,819
Quote:
Originally Posted by pb4uski View Post
+1 I would rather have Prudential backing my pension than the PBGC.
I'm not disagreeing, but why do you say this?

-ERD50
ERD50 is offline   Reply With Quote
Old 09-30-2014, 06:09 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,263
A few reasons.

First, I'm very familiar with the industry given a 25 year career and the steps the industry took after the Executive Life debacle to better define what capital companies need to back the products they issue and how regulators monitor solvency post Executive Life. There has not been a major insolvency since risk based capital was put in place in the 1990s and the industry did quite well in the 2008 great recession - many companies were stressed but they made it through, unlike banks that were going belly up every other day. (and please don't mention AIG.. because its insurance companies weathered the economic storm very well... the AIG troubles were caused by some idiots at headquarters who thought they were the smartest guys in the room and weren't and killed the company as a result...)

Second, I'm quite familiar with Pru from when I worked in industry and then later they were a client and I think they are a pretty strong operation... not the best but better than most.

Third, I don't have much confidence in the PBGC. Its liabilities have exceeded its assets habitually and it has had losses in 5 of the last 10 years. I have little confidence that Congress would bail them out if needed given the situation in DC.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 09-30-2014, 06:36 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Katsmeow's Avatar
 
Join Date: Jul 2009
Posts: 5,307
When DH retired he elected to take his pension as a lump sum. We felt more comfortable with that than relying on PBSC. We rolled over the lump sum into an IRA at Vanguard and we've been happy with that.
Katsmeow is offline   Reply With Quote
Old 09-30-2014, 06:53 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 26,819
Quote:
Originally Posted by pb4uski View Post
A few reasons. ...

OK, thanks. I appreciate the insights.

-ERD50
ERD50 is offline   Reply With Quote
Old 09-30-2014, 10:26 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,733
That makes sense pb4uski.

I do have a fear that we will have an insurance crisis, possibly in my lifetime. But comparatively it seems likely that PBGC would be in worse shape.
clifp is offline   Reply With Quote
Old 10-05-2014, 06:50 AM   #11
Full time employment: Posting here.
Delawaredave5's Avatar
 
Join Date: Dec 2004
Posts: 699
I'd guess PBGC is "more guaranteed" than Prudential, but you probably can't beat Prudential for private company backing. The PBGC has annual maximums - you might have maxed out under PBGC and not under Prudential.

I wish I understood what governs companies around pension changes. What if Megacorp got a great deal from a lousy rated insurance company - can Megacorp just push the pension there and saddle retirees with extra risk ?

If you choose the Prudential option, I'm assuming the payment amount is more secure - Prudential cannot change that (unless there's world insurance meltdown).

If pension stayed with Megacorp and became underfunded (but still solvent and not requiring PBGC guarantee), can Megacorp reduce defined benefits to "stay afloat" ?

I also don't understand relationship between Megacorp and "Megacorp Pension Fund" - if Megacorp goes bankrupt, restructured, etc - how would that affect pension fund ?

Sorry I'm asking more questions than answering - but my point is the Prudential might increase the certainty of your defined benefit pension payout.

A lot will depend on the lump sum offer.
Delawaredave5 is offline   Reply With Quote
Old 10-05-2014, 09:19 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Chuckanut's Avatar
 
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 17,169
Quote:
Originally Posted by Delawaredave5 View Post

I wish I understood what governs companies around pension changes. What if Megacorp got a great deal from a lousy rated insurance company - can Megacorp just push the pension there and saddle retirees with extra risk ?
Read the book "Retirement Heist" by Schultz. It's gives a sad picture about how and why companies changed pension plans.

My advice to any young person: Get the money not the promise, and invest it in an account controlled by you, not by any company, and not by government. Make your retirement 100% your asset.

I'm lucky. My state has managed its pension system well, not perfectly, but well. And, I have also been in SS for my entire career. Pity those who are in a mismanaged pension system. Worse, are those in a mismanaged system and not part of SS.
__________________
Comparison is the thief of joy

The worst decisions are usually made in times of anger and impatience.
Chuckanut is online now   Reply With Quote
Old 10-05-2014, 09:54 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,263
Quote:
Originally Posted by Delawaredave5 View Post
I'd guess PBGC is "more guaranteed" than Prudential....
Prudential Insurance Company of America (Pru's lead/flagship insurer) had $297 billion of assets and $287 billion of liabilities and $9 billion of surplus at December 31, 2013 under regulatory accounting which is quite conservative. On the other hand, the PBGC had $85 billion of assets, $121 billion of liabilities and a $36 billion deficit as of September 30, 2013. Thank you very much, but I would prefer Pru to the PBGC.

From PBGC annual report:
Quote:
PBGC is funded by assets from trusteed plans and premiums from plan sponsors, not by taxpayer dollars.
Quote:
Originally Posted by Delawaredave5 View Post
...I also don't understand relationship between Megacorp and "Megacorp Pension Fund" - if Megacorp goes bankrupt, restructured, etc - how would that affect pension fund ?
The pension fund and Megacorp are separate legal entities. There are rules on what Megacorp must contribute to the plan (but they can voluntarily contribute more if they wish). There are also restrictions on what the fund can invest in and how the money must be used. If Mega goes bankrupt it would affect the fund in that there would no longer be any contributions from Mega to support the fund. As I understand it, while in theory a troubled Mega shouldn't be able to access the pension fund's resources they could utilize them in backwards ways through various loopholes that exist.

PICA 2013 Statutory Financial Statement

PBGC 2013 Annual Report
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 10-05-2014, 10:34 AM   #14
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 3,361
Also there are state guarantee funds for annunities as well. They do have limits however, you might check on your states limits there also. Although I agree that Prudential is pretty secure.
meierlde is offline   Reply With Quote
Reply

Tags
pension


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Help with pension decision Packman FIRE and Money 2 02-09-2012 09:22 PM
Big decision-WHEN to cash in the Pension?? Ken11 FIRE and Money 15 09-28-2011 07:11 AM
Help with making pension decision please Dreamer FIRE and Money 14 01-24-2011 10:43 AM
Pension decision crispus FIRE and Money 12 08-04-2009 05:52 PM

» Quick Links

 
All times are GMT -6. The time now is 07:57 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.