Pension Law

[Iceman]

Somebody help please!! The company I work for is being bought out by a conglomerate and I'm worried about my pension. As I understand it, the buyer has to assume all of the current obligations, including the defined benefit pension plan. However, they can freeze any future growth of those benefits from the day the acquisition is completed. I'm Ok with that as I'm planning on retiring in 2-3 years anyway; but if they can force me to take a lump sum benefit I am toast. I can't invest the lump sum in any kind of reasonably safe instrument that will return me the monthly sum I can currently collect on my DBP.
1. Can they do that, or do they have to honor the monthly payout?
2. If they can force a lump sum payout in lieu of the monthly benefit, can they force it on those retired before the acquisition closes?
Any informed advice would be greatly appreciated as I am in a quandary on what to do. If I can protect the monthly payout by retiring now I will do so before the deal closes.

 

[Brat]

Get thee to an attorney who specializes in pension law. If you were in Portland, OR I could send you a name but otherwise ask your Bar Assn.

 

[Iceman]

Get thee to an attorney who specializes in pension law. If you were in Portland, OR I could send you a name but otherwise ask your Bar Assn.

Thanks, it is probably worth the cost of a consultation.

 

[Amethyst]

I would run, not walk to a good lawyer, get the facts and any advice he/she can offer! What a thing to have happen when you are so close to your target retirement date. You have my sympathy and please let the forum know how things turn out for you.

Amethyst

 

[FIRE'd@51]

My guess is that they would have to provide you with a lump sum equal to the cost of a SPIA providing the same monthly benefit (more likely they would purchase this annuity themselves to guarantee your benefit). Before you spring for the cost of a lawyer, you might want to read the ERISA regulations and/or ask your HR people.

 

[check6]

Definitely not an expert but 2 years ago my mega company was merge witih another mega company that no longer had a DBP. This was at the same time I was retiring with a DBP. The merged agreement was they had to honor the DBP and would continue to fund it which they have.

I agree, a DBP is much better than a lump sum provided the company does not go BK.

 

[growing_older]

I am no legal expert in pensions, but a previous employer terminated a DB pension plan by themselves with no merger involved and they were able to convert everyone's pension benefit as of the date of conversion to a lump sum using a very lopsided formula. Employees with only a few years until they could collect were given a small fraction of the equivalent benefit because the DB formula was strongly weighted to final years salary and years of service. Employees with less than 10 years in got almost nothing. If they start down this road you will need a lawyer.

 

[Alan]

My sympathies Iceman, I went through the same anguish myself. I really don't know what the legalities are but I would expect that the worst that will happen is that the benefits be frozen for those close to retirement, and those already receiving will continue to receive.

I worked for a company between '79 and '85, and for a different company between '85 and '92, each of them had a DB plan. They have since both been taken over by other companies and the DB pension plans cancelled but the new companies are still obligated to pay pensions to both existing pensioners and those who are owed.

I'm currently drawing one of those pensions and will begin to draw the other at 65. (this one is COLA'ed).

Even when your company is acquired, it may well take another 12 months or more before they change the pension plan.

 

[chinaco]

Read the pension protection act of 2006.

Yes, I believe they can change the plan. Definitely going forward. they can freeze it, convert to cash balance (Lump you out to a DC plan)...

You should check this to verify... but I think the PPA of 2006 provides a safe harbor clause for companies that adhere to certain rules.

 

[Sconie]

I'd be prone to wait a bit until you are able to find out more information relative to the sale transaction. Is the transaction going to be a "complete sale" of the business? If so, then the pension liability will go to the new purchaser. Alternatively, the transaction could end up being an "asset sale," in which case the DB liability could very well end up staying with the seller.

chinaco's advice was correct---the new company could continue the plan, freeze it, terminate it, etc. However, as Alan pointed out, it could well take a year before anything happens at all. That said, I wouldn't suggest "running" off to an attorney---in my view, that would be premature.

 

[chinaco]

... That said, I wouldn't suggest "running" off to an attorney---in my view, that would be premature.

If I am correct about the PPA of 2006 protection for the company... unless the company does something wrong, it might be a waste of money anyway.

 

[East Texas]

Keep all the documents you've received as to the current value (at the time of the document) of your pension. If there are monthly online updates, print them also. They may come in handy at one point.

 

[soupcxan]

but if they can force me to take a lump sum benefit I am toast. I can't invest the lump sum in any kind of reasonably safe instrument that will return me the monthly sum I can currently collect on my DBP.

Assuming they use a fair discount rate on the lump sum calculation, you should not be toast - you will just have to invest the lump sum and spend down the prinicpal over time. You can't compare an annuity payment that stops when you die to the interest paid on a lump sum where the principal is still left over at the end.

A $50k/year annuity over 20 years is worth ~$750k today at 3%. If they give you the lump sum ($750k), your interest is only $22.5k/year, but in 20 years you still have $750k, whereas in the annuity payment scenario, you have nothing left.

By your logic, if they offered you a $1M lump sum, you'd decline it because 3%*1M=only $30k/year which is less than your $50k annuity. But the 1M lump sum is worth far more.

(This analysis ignores a variety of other things that could be important - if you take the lump sum, you eliminate the counterparty risk [depending on how much PBGC insurance might cover]. On the other hand, you take on the longevity risk.)

 

[Texas Proud]

Technically, they can not give you less than what you have earned already... Soupcxan is pointing out something that most people miss..

Go to Immediate Annuities - Instant Annuity Quote Calculator. and put in what you think you are supposed to get if you retire now.. because if they stop benefits that is what it is based...

Now, you put in your monthly numbers and it will tell you the cost of an annuity if you went to a private party.... as long as the lump sum is in this range they have met their requirements...


From my mega.... there IS a possibility that you might have the account converted to a cash balance account... when mine did it there were a lot of people who thought the cash conversion was way to low... but when it came time to retire they could always get the pension payout based on the calculation at the time the plan was closed...

IOW, if you think the lump sum is low... you insist on the payout.. they would have to buy an annuity if they do not want to deal with it...

 

[Iceman]

Thank you all for the advice. I learned today that the law requires them to honor what is in place (with a few exceptions and special circumstances). Of course, they can and probably will freeze future accruals since the parent company does not have a pension plan, which is OK. Our company cut out pensions for new employees a number of years ago, and fewer corps have pensions anymore.
As far as lump vs annuity, safe instruments of investment are paying too little interest these days to equal what my annuitized pension would be, including the principle reduction over time. I'm only 56, and expect to live at least another 25 years based on current health and family history. Using the annuity calculator, my lump sum would last 15 years at a monthly payout equal to my pension calculation.