How secure is my private sector pension?

[G-Man]

My wife and I will receive pension at age 60 (DH) and 62 (DW). These are non-cola pensions from the private sector. The pension takes care of the majority of our expenses during retirement.

Annually I do receive the pension funded status document and they both seems to be fully funded.

In addition, I assume pension plans are protected/insured by the Pension Benefit Guaranty Corp (PBGC).

Should I be concerned at all? Please advise.

 

[Alan]

I wouldn’t be concerned, particularly since they are currently well funded. I have a collection of 4 such plans, all fixed since I started taking them getting on for 14 years ago. If any of them had been higher than the PBGC limit then I might have had a slight concern.

 

[pb4uski]

...Should I be concerned at all? Please advise.

No, but further, why would you be and is there anything that you can do about it?

I'm similarly situated in that I'm receiving pension benefit payments from a private sector pension plan that is well funded and my benefit is lower than the PBGC limit. Noth to worry about.

Pension plans are well regulated, safe and covered by the PBGC.

While most private pension plans are covered by the PBGC, some are not, butu can verify coverage at the PBGC website.

 

[momoney]

How secure is it when your pension is sold to an annuity provider like Athene that is headquartered in Bermuda? You quickly lose PBGC protection and then it's up to the state you live in to protect you.

 

[ERD50]

How secure is it when your pension is sold to an annuity provider like Athene that is headquartered in Bermuda? You quickly lose PBGC protection and then it's up to the state you live in to protect you.

Links?

I'd be very, very, very surprised if a company could rid themselves of PBGC protection be selling it off to a third party.

[EDIT] Some follow up posts did give links, and this can be done under some restrictions, so not disinformation at all, but maybe a little overblown?

[-]Please don't spread disinformation and FUD.]/-]

If you can provide solid links, I'll take that back and thank you for educating me. But I feel pretty confident here. I just can't see it working that way. [EDIT] Mea Culpa

-ERD50

 

[LateToFIRE]

I'm no expert, but I do have some experience with corporate bankruptcy - which is your biggest risk for a private sector pension. What I've seen is that the PBGC is not entirely adequate as pension insurance against bankruptcies. For one thing, it's not funded well enough to handle multiple bankruptcies - this is a real possibility during certain kinds of disruptions that might impact an entire sector (ex. a war, a pandemic, a natural catastrophe, a toxic tort like asbestos). For another, if PBGC has to step in, in most cases benefits will be cut - you are not guarantied to receive your same benefit. And then also, as momoney pointed out, your plan might be annuitized / sold off to an investor/insurer and then your risk is connected to the creditworthiness of that institution.

So, long way of saying that a pension, while mostly secure, has some remote risks associated with it, kinda like having all your eggs in one basket - usually a very nice basket, but still one basket.

Edit: Adding that funded status is a very good indicator of your risk level. You should take comfort that yours is currently fully funded. You should also check the public credit rating of the business your pension is connected to if they have one - most MegaCorps have it, usually from Moody's or S&P. If it is investment-grade, you're golden (just hope that corp never gets taken over and leveraged up by a private equity fund).

 

[ERD50]

I'll add to those who say "don't worry", with a few caveats.

1) There are two types of pensions protected by PBGC - the typical single company pension, and the less common multi-employer pension. The multi-employer has less protections and different rules. Which are you?

https://www.pbgc.gov/prac/multiemployer

The two programs differ significantly in the level of benefits guaranteed, the insurable event that triggers the guarantee, and premiums paid by insured plans. Multiemployer plans also have separate funding rules and requirements, and PBGC’s multiemployer guarantee is significantly lower than our single-employer guarantee.

2) PBGC only protects up to an annual $ limit (see their site for details specific to your situation). Above that, if your company can no longer pay, and PBGC takes over, you should be covered up to that limit, nothing is paid above the limit.

But since you say they are fully funded, that is extremely unlikely.

-ERD50

 

[ERD50]

I ... For another, if PBGC has to step in, in most cases benefits will be cut - you are not guarantied to receive your same benefit. ...
....

Again - links? As I understand it, benefits are only cut above the limit, which is fairly high. So in some cases, benefits may be cut. I don't think it is most cases.

I ... And then also, as momoney pointed out, your plan might be annuitized / sold off to an investor/insurer and then your risk is connected to the creditworthiness of that institution.....

Again, I'm extremely skeptical of this.

... What I've seen is that the PBGC is not entirely adequate as pension insurance against bankruptcies. For one thing, it's not funded well enough to handle multiple bankruptcies - this is a real possibility during certain kinds of disruptions that might impact an entire sector (ex. a war, a pandemic, a natural catastrophe, a toxic tort like asbestos). ....

That is a somewhat 'black swan' possibility, and it could happen. There will be lots of other things to worry about in that case, and PBGC would still be able to pay out a % of your benefit, it won't just go 'poof'.

-ERD50

 

[LateToFIRE]

I'll add to those who say "don't worry", with a few caveats.

1) There are two types of pensions protected by PBGC - the typical single company pension, and the less common multi-employer pension. The multi-employer has less protections and different rules. Which are you?

https://www.pbgc.gov/prac/multiemployer


2) PBGC only protects up to an annual $ limit (see their site for details specific to your situation). Above that, if your company can no longer pay, and PBGC takes over, you should be covered up to that limit, nothing is paid above the limit.

But since you say they are fully funded, that is extremely unlikely.

-ERD50

Ahhh yes, multi-employer plans, forgot about those, essentially a pooled plan between several, could be dozens of companies. Much harder to analyze - I would not pretend to fully understand. Key there is that a triggering event can be caused by one of the other participants, Good news is that risk is spread across numerous companies, bad news is that one large bad apple can create a problem.

 

[LateToFIRE]

Again - links? As I understand it, benefits are only cut above the limit, which is fairly high. So in some cases, benefits may be cut. I don't think it is most cases.



Again, I'm extremely skeptical of this.



That is a somewhat 'black swan' possibility, and it could happen. There will be lots of other things to worry about in that case, and PBGC would still be able to pay out a % of your benefit, it won't just go 'poof'.

-ERD50

I don't need links - I'm speaking from direct experience. At any rate, there is a fair amount of complexity to what "could" happen - very much driven by specific facts and circumstance. Benefits "could" be cut, matter of opinion as to whether the PBGC level is bad / not bad / etc. Pensions get annuitized all the time - its a big business - I know people in that business. Black swan event? Bankruptcies happen all the time, just not usually to large, investment-grade companies.

But, all that said, not trying to scare anyone. Just answering the question that was posed. I have a small, fully-funded pension from a large, reputable company and I don't lose sleep worrying about it. I wouldn't go so far as saying "black swan" don't worry about it, but it is indeed rare to lose a pension or have benefits cut due to failure of a plan or sponsor.

 

[jazz4cash]

Links?



I'd be very, very, very surprised if a company could rid themselves of PBGC protection be selling it off to a third party.



Please don't spread disinformation and FUD.



If you can provide solid links, I'll take that back and thank you for educating me. But I feel pretty confident here. I just can't see it working that way.



-ERD50

I was skeptical also so I found this
“PBGC's guarantee ends when your employer purchases your annuity or gives you the lump-sum payment.”

on this page

https://www.pbgc.gov/about/faq/pg/general-faqs-about-pbgc

My megacorp annuitized a portion on their DB pension obligation with a well regarded insurer, not Athene.

 

[pb4uski]

How secure is it when your pension is sold to an annuity provider like Athene that is headquartered in Bermuda? You quickly lose PBGC protection and then it's up to the state you live in to protect you.

It depends. I'm very familiar with Athene.

First, the issuer of the annuity would not be a Bermudian insurance company. Only US domiciled insurers can sell annuities in the US. The issuer would be a US insurance company that is regulated by the insurance department of the state it is domiciled it. The US insurer is ultimately owned by the Bermuda parent company referred to. There are further rules regarding distributions from the US insurer to its parent company.

Second, in some cases the pension plan owns the annuity and in other cases the pension obligation is defeased and the annuity benefits are paid by the US insurer directly to the pensioner. In the first case, the pension plan is still obligated to make the pension benefit payments even if the insurer defaults on the annuity and you would not lose PBGC protection. In the second case the issuance of the annuity relieves the pension plan of any future obligations to the pensioner and you no longer have PBGC protection.

In any event, to my knowledge there had never been an instance where a US regulated insurer failed to make payments on a payout annuity, and if they did then the state guaranty funds would step in.

 

[Jerry1]

What is the maximum that PBGC will pay out? If a pension is $2K or $5K per month and the company defaulted, what would PBGC pay?

 

[LateToFIRE]

What is the maximum that PBGC will pay out? If a pension is $2K or $5K per month and the company defaulted, what would PBGC pay?

https://www.pbgc.gov/wr/benefits/guaranteed-benefits/maximum-guarantee

 

[LateToFIRE]

Here is a Congressional Report on PBGC that provides some interesting data points, a few of which I paraphrased below:

* The max pension guar is $81,000 a year for aged 65 workers in plans that terminate in 2023

* More than 80% of PBGC recipients in single-employer plans received their full benefits (as of a 2019 study)

* Among participants whose benefits were reduced, the average reduction was 24%

* 89% of the reductions in value of plan benefits were in only 10 plans

https://crsreports.congress.gov/product/pdf/RS/95-118

All in all sounds quite comforting. The max level is much higher than I recalled, but my direct experience is a couple decades old now [I often forget just how old I am]. So, I would say, based on what I'm reading, the key risk is not so much having your plan go into receivership by PBGC, it would be any circumstance where the plan is no longer covered by PBGC, as pb4uski noted, and as I noted, any circumstance where the PBGC could itself become under-funded by a wave of bankruptcies - hint, pandemic impact on certain industries was where that concern was last highlighted, prior to that it was 2008 Great Recession/ Credit Crisis, before that it was 9-11, before that it was.... so these "Black Swans" seem to hit about every 10-15 years. Fortunately, gubment usually comes to the rescue in those situations

 

[gauss]

My wife and I will receive pension at age 60 (DH) and 62 (DW). These are non-cola pensions from the private sector. The pension takes care of the majority of our expenses during retirement.

Annually I do receive the pension funded status document and they both seems to be fully funded.

In addition, I assume pension plans are protected/insured by the Pension Benefit Guaranty Corp (PBGC).

Should I be concerned at all? Please advise.

Be careful interpreting the "funding level". I did a bit of a deep dive into this about a year ago. Going into this I was under the impression that fully funded meant what it sounded like. Unfortunately much tinkering has been done with the funding level definitions and requirements over the years since the Pension Protection Act went into effect.

One of the big area of concern for me was the use of MAP-21 "corridors". This allowed the company to use artificial discount rates to vary their contributions and directly affect the level of "fundedness." You may see the difference in funding levels on your annual funding notice where funding levels are shown under both the old rules and the newer rules.

These corridors were suppose to narrow over time giving less freedom for the companies to artificially effect funding levels and contributions -- especially as time progressed since the Great Recession and the passage of the Federal PPA act.

But A funny thing happened on the way to the Forum.

#1) Companies liked the ability to reduce funding levels, and still (legally) claim high levels of funding

#2) The government liked it when corporate earnings are NOT diverted into the pension funds (!) Remember, those pension contributions are tax-deferred to the companies and the government receives less revenues when pension contributions are higher.

This makes it tougher to put through new spending programs or tax cuts which aren't "paid for" unless provisions are in the legislation to "widen" the corridors, thus increasing government revenues, and increasing corporate cash flow.

It's like motherhood and apple pie -- except for the poor pensioners (or the PBGC) that may be left holding the bag.

I used to look at the funding level and not worry so much about how much of the pension was PBGC insured. Now I am tracking the path to PBGC full coverage, like a hawk. Speaking of it, I think the new annual PBGC levels may h[-]ave been announced or will be announced shortly.[/-] be announced by early November.

-gauss

 

[Al18]

It seems wise to check on the health of the company on a yearly basis. If they remain healthy then you should not worry.

The PBGC has not been able to guarantee the full pension of many pilots over the years because their pay exceeded the limit - see https://www.gao.gov/products/gao-05-945

 

[gauss]

It seems wise to check on the health of the company on a yearly basis. If they remain healthy then you should not worry.

The PBGC has not been able to guarantee the full pension of many pilots over the years because their pay exceeded the limit - see https://www.gao.gov/products/gao-05-945

... also early retirement benefits (such as Social Security supplements) also severely impairs PBGC guarantees. See for example Delphi salaried pensioners.

-gauss

 

[pb4uski]

It seems wise to check on the health of the company on a yearly basis. If they remain healthy then you should not worry. ...

I agree, but keep in mind that the pension plan is a separate entity from the employer. It is very possible for an employer to have financial difficulties but the pension plan to remain in good financial health.

If the inverse occurs, the employer just make additional pension contributions.

Another way to assess it is to look at the pension plan disclosures and funded status of the plan in the employer's audited financial statements, but if the employer has multiple plans they are often combined for disclosure purposes.

While I have never done it and I'm too lazy to look it up, I'm pretty sure that you can request the annual audited financial statements for your plan.

 

[G-Man]

In my wife and I case, the employer no longer offers a pension to new employees. That stopped about 12 years ago or more. However, we are grandfathered in.

 

[Sunset]

While not a Pension Plan, employers often offer some type of health insurance benefit or $$ towards retiree health costs. These can be cut at anytime.

This has just happened to us, the company now offers a free Medicare-Disavantage program or nothing, prior to this they gave us ~$3K to pay for a medicare supplemental or medical expenses per year.

So it feels like we just got a $3K reduction in retirement benefits, which is a lot considering the actual Pension is very very small.

 

[G-Man]

While not a Pension Plan, employers often offer some type of health insurance benefit or $$ towards retiree health costs. These can be cut at anytime.

This has just happened to us, the company now offers a free Medicare-Disavantage program or nothing, prior to this they gave us ~$3K to pay for a medicare supplemental or medical expenses per year.

So it feels like we just got a $3K reduction in retirement benefits, which is a lot considering the actual Pension is very very small.

My wife and I megacorp offers retiree healthcare up to age 65 and HRA starting at age 65. Haven't retired yet. But I hope these benefits don't get cut.

 

[Sunset]

My wife and I megacorp offers retiree healthcare up to age 65 and HRA starting at age 65. Haven't retired yet. But I hope these benefits don't get cut.

That's the type of thing we had.... then poof....

 

[momoney]

Links?

I'd be very, very, very surprised if a company could rid themselves of PBGC protection be selling it off to a third party.

Please don't spread disinformation and FUD.

If you can provide solid links, I'll take that back and thank you for educating me. But I feel pretty confident here. I just can't see it working that way.

-ERD50

I'll post the link with my comment next time. Sorry for the confusion.

• Retirees will receive monthly payments from Athene instead of the AT&T Pension Benefit Plan.
  
• However, in Q1 2020, Athene Holding reported a $1.1 billion loss, in part due to financial market turmoil, which raises questions about the risks involved in its investments.
  
• “This is what we’ve worried about — when companies sell off their pension plans,” said Karen Friedman, policy director at the Pension Rights Center, a nonprofit focusing on workers’ retirement security.
  
• Unlike pensions insured through the Pension Benefit Guaranty Corporation (PBGC), pensions taken over by private insurance companies such as Athene are no longer backed by the PBGC and are instead backed by the insurers themselves.
  
• Furthermore, insurers are regulated by individual states, not the federal government, and some are affiliated with private equity firms whose short-term profit focus can conflict with the long-term obligations of the pension plans.

https://www.theretirementgroup.com/blog/atts-retiree-pension-payments-taken-over-by-athene

 

[gauss]

Links?

I'd be very, very, very surprised if a company could rid themselves of PBGC protection be selling it off to a third party.

Please don't spread disinformation and FUD.

If you can provide solid links, I'll take that back and thank you for educating me. But I feel pretty confident here. I just can't see it working that way.

-ERD50

It is is a regulated process, but it is allowed and referred to as a Standard Termination.

They are not selling anything, but rather buying annuities from a third party insurance that cover all the obligations. Google "Pension DeRisking" for lots of info on this.

https://www.pbgc.gov/prac/terminations/standard-terminations

I know that some Retirement focused advocacy groups (such as NRLN) are trying have the law that allows this amended so that Reinsurance would also need to be purchased in case the chosen insurer fails.