Security of PBGC?

[Gearhead Jim]

Keeping in mind that nothing is truly guaranteed except death & taxes...

My former employer (United Airlines) went into Ch 11 a little while before I retired in 2005, and dumped all their pensions on the PBGC. Each employee group had a separate plan and they were kept separate by the PBGC. My own group's plan had enough assets that I'm getting substantially more (~37 % instead of ~20% of my original projection) than the PBGC guarantee.

So what does the PBGC do with that "extra" money being used to give me the higher monthly pension?
Is it all in Treasuries (I hope), or some other mix of equities (ugh) and bonds?
Can it be raided to make up future shortages in other plans, United or otherwise?

"No man's freedom or treasure are safe when the legislature is in session."
But some outcomes are more likely than others...

BTW, we also had a very good Defined Contribution plan that was actually enhanced during the bankruptcy, so we won't starve either way. But it would be nice to have some idea of the future.

 

[iloveyoga]

I worked with DB plans for many years, but I don't know the answer. Does the PBGC back up their liabilities with assets, or do they just pay as you go? They collect premiums every years from the covered plans and when I left the biz these premiums had increased a lot.

 

[Gearhead Jim]

They must have assets, because they are paying me noticeably more than my "guarantee" would be and we were told that's because the plan had/has enough assets to do so.

 

[Texas Proud]

I would be shocked if they did not invest like all other pensions which mean they are invested in stocks and bonds...


There is no way to fund a pension just on treasuries without be way over funded according to the calculation...

 

[pb4uski]

Just an educated guess. At the point that a plan fails and they take it over, I suspect that they ring-fence the assets and then manage them... if the ring-fenced assets can prudently pay more than the guarantee then they do so... if not then they supplement what the assets can pay with their own money to make up the shortfall.

 

[iloveyoga]

Just an educated guess. At the point that a plan fails and they take it over, I suspect that they ring-fence the assets and then manage them... if the ring-fenced assets can prudently pay more than the guarantee then they do so... if not then they supplement what the assets can pay with their own money to make up the shortfall.

That makes sense... and the annual premiums that come in from covered plans would provide some cashflow to the PBGC.

 

[samm]

PBGC Investment Policy Statement

Here is the 2016 PBGC Investment Policy Statement which explains how assets are invested.

https://www.pbgc.gov/Documents/Investment-Policy-Statement.pdf

 

[Gearhead Jim]

Thanks for the link, that's what I was looking for.

 

[grayv]

from the link, looks like their target is 70% fixed income and 30% non-fixed income

 

[bolt]

Personally, I'm suspect of PBGC's upcoming solvency timeline.

Good Luck though!

 

[BeachOrCity]

I would view PBGC as the same as any GSE debt (Fannie, Freddie, Amtrak?, etc)....
They can default if they want to, but if they do, its kind of impales all the others.

From my perspective PBGC is a better guarantee than a well funded plan to begin with. So if you are WELL under the limits, I would not be concerned about it.

 

[Gearhead Jim]

^^^
They don't actually have limits in the normal sense. They calculate what your pension "should" have been, using their funny math, and pay you that much if there is enough money in your particular plan. If there isn't enough money, they will reduce you down, perhaps all the way until you hit your guarantee amount and pay that from their reserve if your plan doesn't have even enough money to meet the guarantee.


In my case, I'm getting almost twice what my guarantee is (~37% vs ~20%), so if they run into problems then I could be reduced. Posts #7 & #9 suggest they have a pretty conservative asset allocation.