The company could go bankrupt too. A lot of bankrupt companies were very solvent years prior with no hint of financial problems. At this point the only pensions without bankruptcy risk are state and federal pensions. No provisions for either states or the federal government to file bankruptcy petitions. There has been some talk about allowing states to file given unfunded realities of many state pension funds. Municipalities can file for bankruptcy. Though there are not a lot of government pensions that are owed by municipalities.
Thereâs always a possibility that a company can go bankrupt. However, our company is like a rock. Big money maker, and more stable than the state or federal government, in my opinion. But you never know what the future holds.
Underfunded pensions that go belly-up wind up with the Pension Benefit Guaranty Corporation, which then takes over benefit payments and has a max on payments. For someone with a decent annuity, it can be significantly reduced. A friend of mine from collegeâs dad was a pilot and I recall his airlineâs pension took a real beating. That was before I got into the retirement plan field, so I wasnât paying that much attention.
saillakeerie, there is a big underfunded pension problem in KY. My niece-in-law has been posting a lot about it. They are going to phase out the pension plan and put younger EEs into a 401k. My sister is also in that boat, but is close enough to maxxing out the retirement benefit (27 years max credit) that sheâll be grandfathered, though she may lose her COLA. KY teachers donât pay SS, either, so canât collect primary or spousal benefits, so the pension cutback is a very significant issue for them.
Yes, you sure donât want your pension taken over by the PBGC, it would plummet. And I would imagine that benefit is severely underfunded, there have been so many people needing it.
Over the decades, there have been companies that were viewed as the gold standard in terms of financial stability that are no longer in existence. No one wants it to happen but it sometimes does.
If I were king, government pensions would be frozen tonight at midnight and everyone would be moved to defined contribution rather than benefit plans. Too many of the pension plans arenât sustainable. States will be faced with significant spending cuts on other programs and/or drastic tax increases to fund them going forward. Consideration would need to be given to what is done with people at or near retirement. But any talk of that tends to lead people to revolt.
Yes, you never know for sure what can happen over the long term.
I think many government pensions will change in the future, they have to, as states/cities continue to overspend their budget, and people live longer.
The problems of pensions have been known for a long time but next to nothing has been done about them. Its my understanding that the feds have made changes to their pensions (at least for the rank and file) which address the solvency issues. Not so with states/cities. Recent state actions to address certain of the issues (yet not freeze pensions entirely) were met with protesters filling state capitol buildings. Cities/municipalities can file for bankruptcy protection and reduce pensions. At this point, states have no legal means to accomplish that.
PBGC has significantly increased premiums to start to cover some of the funding deficiencies they inherit, but itâs still not enough.
Without pensions, my parents and in-laws would have been dependent on their children (read: us) long ago. Neither has any savings outside retirement vehicles â a military pension, SS and a 401k for my dad, and a union pension and supplemental profit sharing plan for my FIL.
From the plan administration side, I am sick when I see >50% of the plan participants cash out their 401k accounts when they leave their jobs. They donât have pensions and most contribute just enough to get a match. I know times are tough, but that $25,000 distribution at age 35 is costing the participant far more than that.
Life would get very uncomfortable for us if our pension disappeared. The pension pays most of our living expenses and allows us to support our disabled D. H isnât eligible for any SS and Iâm not eligible for much and it will be years before I am age-eligible.
I always avoid investments I donât understand, as well as those who seem unduly risky. At this point in my life, I am not interested in taking on new and bigger risks.
Just FYI about the possible change from a defined benefit pension plan to a variable benefit pension plan:
Any pension youâve earned to date is frozen. You cannot lose anything youâve earned to date. They put aside what youâve earned. So technically there is no need to retire at that point and take your pension.
However, the way they put aside what youâve earned to date is to turn the actuarial value of your pension into a lump sum and to deposit that amount in your new variable benefit account. You then have two risks you didnât have before:
- You, not the company, are responsible for investing that lump sum. And you'd better keep your fingers crossed that you do a good job with that.
- In addition, if you live longer than the assumptions, you risk running out of money. Under the original defined benefit pension plan, the benefit would continue as long as you are alive (or, if you choose a benefit to continue to your spouse after your death, until the second one to did passes).
Hmm, as far as our situation, VeryHappy, I think if that is the way it would work out, many people that I work with would jump at the benefitâŠI would much rather get a lump sum than any other option. But I doubt that is on the table. Also, I donât think the option is there for us to be personally investing this. I need to find out more details, but they havenât released much of what theyâre considering.
Yikes! Thatâs a lot of family to support. And with pensions disappearing so quickly, I suspect that far more elderly than before are going to be counting on their children to support them.
Iâm watching whatâs going on in the market and with real estate, and itâs obvious to me that if youâre in those markets, youâre probably doing very well, watching your assets and net worth climb like crazy. But if you arenât participating in that, you are looking at people around you becoming prosperous, feeling the sting of low wage increases and inflation. Itâs a bad situation for many.
On the other hand, if they knew they werenât going to have pensions, they probably would have made different choices.
DW and I knew we were never going to have any significant pension income, so weâve used 401kâs and IRAs to save.
If you are already retired and your pension plan gets taken over and your pension is cut 50% - those are the people I feel bad for.
âOn the other hand, if they knew they werenât going to have pensions, they probably would have made different choices.â
Some might, many wouldnât. Look at how poorly people save in general, even forgoing 401k contributions where companies match. Many arenât good at delayed gratification.
The big difference between 401ks with âopt inâ versus âopt outâ savings plans indicates that most people donât think enough about their retirement needs. It is sad that you almost have to trick people into saving.
Unfortunately, the very generous plans (e.g., one of my employers matched our contributions 2x!, and people still didnât opt in) seem to have mostly gone away. DS was lucky enough to get a job with a conscientious and ethical employer, and heâs all in on his 401k, but even that plan only matches 1x.
I think everyone who has a pension whose pension is suddenly stopped, halved or dramatically changed would be seriously affected. As folks try to figure out their finances, they do count on those funds and it was part of the benefits of the high made the job more attractive.
The closer they are to retirement, the more they count on those funds and. tougher it is to make other arrangements if something jeopardizes that stream of income.
I guess Iâve been unlucky because the majority of the companies Iâve worked for have not provided any match. These have been primarily small startup-type software companies.
OTOH, DS got a 150% match at the biotech he was at. Maybe I went into the wrong industry? :-?
This is a little disturbing:
[Americans Are Retiring Later, Dying Sooner and Sicker In-Between](Americans Are Retiring Later, Dying Sooner and Sicker In-Between - Bloomberg)
401(k) matches are often offered as an incentive to get rank and file employees to contribute to allow higher ups the opportunity to max contributions without running into anti-discrimination rules (at least last time I looked at ERISA rules which was many years ago). If a company knows its employees will contribute without a match or with a low one, they either will offer none at all or a low one. So its not so much being a generous employer as execs trying to max their own retirement funds (at least in many cases).
Pensions wouldnât be suddenly stopped, halved or dramatically changed. If you are retired, you would continue to get the promised retirement benefits. If you are not retired, what benefits you have earned today is what you would receive when you retire. They just wouldnât continue to accrue. And BTW, no one should expect any more than that. If you have a pension and its frozen, its frozen (happened a lot in the private sector). They had the same issues in terms of counting on that income, benefit of the job, etc. What is the alternative? Large spending cuts on state/local levels and/or large tax increases.
And that is before you get into the games that are often played. Local paper several years ago conducted an investigation into several area police/fire departments. Pension benefits are typically based on average of last three years salary and a given percentage (80% is pretty common). Police/fire departments were giving preferences for overtime to people who were within 3 years of retiring. So it was the norm that people were getting pensions that were higher than the highest salary the employee ever had (prior to those last 3 years). Everyone let it go on because they were counting on getting the same benefit themselves when the time came.
⊠and then thereâs the LIRR retirement swindle, where up to 97% get disability shortly after retiring.
http://www.nytimes.com/2008/09/21/nyregion/21lirr.html
Sometimes, I just love paying my taxes.
NRE, that biotech was an anomaly. 
None of my or Mrâs employers ever matched more than the first 1-3k. And that was considered generous, LOL.
That LIRR article is 9 years old, have the abuses been brought under control?
The teacherâs union in my town (and many others) had a provision for years that, upon announcing you planned on retiring in three years, you would get an immediate $5k/year raise. This has the effect of boosting a pension by as much a $4K/year basically for nothing.
It was finally made illegal by the state to have pension boosters like this in a public contract.
There were lots of these loony pension-spiking schemes, like getting a full yearâs credit for working one day of the year, using a political connection to get a high paying job for one year (very popular for people who would be getting a low pension because all they did was serve on low-paying town boards or whatever, a cushy patronage job could boost a pension by several x), being able to cash in sick and vacation pay to boost your last yearâs pay, double or triple dipping, being hired back as a âconsultantâ to do the same job while receiving your pension, etc.
A lot of these were eliminated or reduced, thankfully.