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Your pension plan benefits may not be as ironclad as you think


If you’re fortunate enough to have a pension, there’s a certain relief you may feel that no matter what, when you retire, you’ll get a set amount of money every month for the rest of your life.

But what if your promised pension benefits aren’t as guaranteed as you thought?

During a recent online chat, a few people wondered whether they were being paranoid about their pension.

Q: “I’m lucky enough to work for a company that has a pension plan,” wrote a reader from Connecticut. “When I first started with the company, I contributed to both the pension and the 401(k), and the company did a 401(k) match. About five years into my tenure, they stopped the 401(k) match, and a couple of years after that, new employees were no longer enrolled in the pension plan. My manager is convinced that the next step will be eliminating the pension for the grandfathered employees. Can my company do that? The pension is fully funded. Given that, can they make changes now?”

A: Yes, an employer can end a pension plan through a process called “plan termination,” according to Pension Benefit Guaranty Corp. (PBGC), which insures private-sector pension plans. The PBGC operates two separate insurance programs — one covering pension plans sponsored by a single employer and another covering “multiemployer” pension plans.

Read: House passes bill to boost threatened pension funds

There are two ways an employer can terminate a pension plan, according to the PBGC.

Standard termination: The company can only terminate the pension after proving to the PBGC that “the plan has enough money to pay all benefits owed to participants. The plan must either purchase an annuity from an insurance company (which will provide you with lifetime benefits when you retire) or, if your plan allows, issue one lump-sum payment that covers your entire benefit.”

Distress termination: If a plan is not fully funded, an employer can apply to terminate the pension plan if the company is under financial distress. “However, the employer must prove to a bankruptcy court or to PBGC that the employer cannot remain in business unless the plan is terminated,” according to PBGC. “If the application is granted, PBGC will take over the plan as trustee and pay plan benefits, up to the legal limits, using plan assets and PBGC guarantee funds.”

From the PBGC, read: Pension Plan Termination Fact Sheet

Here’s some additional information from Karen Friedman, executive vice president of the nonprofit Pension Rights Center.

Friedman: “Given the employer’s history of freezing the pension plan for new employees and stopping the match for the 401(k), the boss could very well be thinking about terminating the plan. Since the private pension system is ‘voluntary’ there is no requirement that an employer establish or preserve the plan. If the reader has not already received a statement showing how much he or she has earned under the plan, he or she should write to the administrator of the plan to request an ‘individual benefit statement.’ On another note, it could be beneficial for fellow employees to relay their concerns to the company. Some employers feel that they can cut their costs by stopping employer matches and freezing or terminating pension plans because they think that few if any employees protest what is effectively a pay cut. It is important that employees let their bosses know that they value their retirement plans as an important part of their compensation.”

Increasingly, folks heading into retirement are feeling skittish about their pension security.

Q: “I live in an area where a lot of the union pensions are not adequately funded (e.g. one worker today supports seven to eight retirees),” a reader from Pittsburgh wrote. “Also, many local and state pensions are woefully underfunded. That bill will come due and then what happens?”

A: Let’s address union pensions first. As Friedman of the Pension Rights Center points out, in many industries — coal mining, construction trades, trucking — there are pension plans that are jointly trusteed by a union and a number of employers paying into the fund. These are known as multiemployer plans.

The PBGC says there are 1,400 multiemployer plans covering 10 million workers and retirees. In a recent report, the PBGC said about 125 multiemployer plans covering 1.4 million people are expected to run out of money over the next 20 years.

In an effort to save these plans, Congress passed the Multiemployer Pension Reform Act that allows financially troubled plans to apply to cut workers and retirees’ benefits. Despite the intention of the law, Friedman said it was a “misguided” solution.

Here’s a fact sheet from the Pension Rights Center about the law.

“Already 14 multiemployer plans have cut tens of thousands of retirees’ benefits by more than 60 percent with the result that the retirees are having to forego medical treatment, sell their homes and even consider filing for bankruptcy,” Friedman said. “At the Pension Rights Center, we think this is terribly unfair. The retirees whose benefits have been cut had given up wages in exchange for their promised benefits. They did nothing to contribute to the underfunding of their pension plans.”

It’s not just private pension plans that are in trouble. Look at what happened in Detroit. Unfunded pension and retiree health-care liabilities accounted for about 40 percent of the financial obligations for the city, which filed for federal bankruptcy protection in 2013. As part of its filing, Detroit had to make some major changes, which included cutting pension and health-care benefits for retirees and reducing pension benefits for current workers.

A 2018 report by the Pew Charitable Trusts examined the aftermath of Detroit’s pension crisis. “Unfunded pension obligations and retiree health care costs amounted to roughly $7.4 billion of Detroit’s $18 billion in bankruptcy debt,” Pew pointed out in its report, “The Challenge of Meeting Detroit’s Pension Promises.”

“Most state pension plans are well-funded, and for those that aren’t, studies show it’s because the state legislators didn’t fund the plans, such as in Illinois and New Jersey,” Friedman said. “According to Dan Doonan, the executive director of the National Institute on Retirement Security, states that have shortchanged their pension contributions in the past will have to develop, and stick to, sound funding practices in the future to rectify past mistakes, as states cannot go bankrupt. Despite the predictions that many jurisdictions would go bankrupt after the Great Recession, public plans are not defaulting on pension benefits. The few cities that did seek bankruptcy were experiencing a wide range of very difficult economic challenges, including Detroit.”

Sarah Anzia, an associate professor of public policy and political science at the University of California at Berkeley, wrote recently in an analysis for The Washington Post that “over the past few decades, policymakers from California to Wyoming have made public pension benefits ever more generous — while setting aside too little money to pay for them.”

Anzia points to another Pew report released this year that found that governments have underfunded their pensions by at least $1.28 trillion.

“Current state and local government employees and retirees will almost certainly get their pensions,” Anzia said. “Out of the public eye, public-sector pension expenditures are quietly and persistently eating into local government budgets. As a result, local government workforces in many places are shrinking. This doesn’t just mean fewer government jobs to go around. It means that all those who rely on local government services are in danger of losing those supports. Many Americans take for granted that their local governments will provide public services like police protection, fire protection, street sweeping and refuse collection. But it may well become harder for local governments to carry out those basic functions — because of rising pension costs.”

Read: A silent pension crisis is eating away local government services. Here’s what you need to know.

Private pension plans are required to file a financial report called a Form 5500 every year with the federal government. It’s important that you read the annual pension funding notice you receive as a plan participant. If you cannot find your notice, you can search for the company’s latest filing here.

Federal law requires that the company disclose any events that have a material effect on a plan’s assets or liabilities. Being aware of the financial health of your plan is vital as you run the numbers for your retirement.

For more information about your pension rights, visit the Pension Benefit Guaranty Corp. website. If you have a question, contact the Pension Rights Center. You should also check out the website for the latest news about pension-related legislation.

Read more:

Here’s one of the biggest threats to having enough money in retirement

Fearful of an impending recession? Here’s what you need to know if you’re near retirement or retired.

Your Thoughts

Are you worried about the financial security of your pension? Send your comments to Please include your name, city and state.

Retirement Rants and Raves

I’m interested in your experiences or concerns about retirement or aging. What do you like about retirement? What came as a surprise?

If you haven’t retired yet, what concerns you financially?

You can rant or rave. This space is yours. It’s a chance for you to express what’s on your mind. Send your comments to Please include your name, city and state. In the subject line put “Retirement Rants and Raves.”

“Here’s what a friend says about retirement: ‘It’s the best job I ever had,’” wrote Bob Manning from Louisville.

On the other end of the retirement spectrum, I hear often from retirees worried about having enough income.

Marina B. from California is worried about having enough. She’s 77, and single with no children. She’s also struggling with health issues.

“All that stands between me and the streets is a small inheritance I got from my parents and my uncle,” she wrote. “I have no other source of income except $674 a month in Social Security. When I first inherited money from my family, I was living in a Section 8 apartment and eating from the local food bank. Now I can eat good food and get the kind of health care I need. (Medicare doesn’t cover what I need.) But every month, I burn a big chunk of my nest egg to pay for health care, caregivers, prescriptions, supplements and healthy food. I have caregivers three afternoons a week and someone to help with the front and backyard. My health and quality of life are deteriorating, and I am going to have to spend thousands of dollars on the kind of care that might improve my quality of life. Because I have never had money (I have lived below the poverty level all my adult life), I do not understand how it works.”

What’s concerning lately are reports that a recession may be coming soon.

“I don’t really understand what recession means for my investments,” she wrote. “I need every penny of this money to be able to get the health care and help I need. I do not want to go back to poverty in my old age. It seems once you are invested in the market, you can never get out. You certainly can’t sell when things are at a low. My financial adviser has explained the futility of trying to ‘time the market,’ and I certainly don’t have the savvy, even if I wanted to. I’m afraid to take my money out of the market, and afraid to leave it in with all this talk of an economic downturn, but quite frankly, I don’t have a clue what I would do with it if I took it out. All I know is I want my money to last as long as I do and to help me maintain comfort and quality of life. I’ve gotten to the point where quality of life is a critical issue.”

I sent Marina a link to this column: Three financial experts address retirees’ five most pressing worries about the recession and their retirement funds

Laurie K., who also lives in California with her husband, both of whom are in their late 60s, wrote: “My husband retired with a 75 percent pension (so I’ll get something if he predeceases me) from a major grocery chain after 40 years. He’s receiving social security, too. But we think we still have a long life ahead, so he went back to work three days after retiring, in a part-time role as a custodian at $18 an hour. They take $300 a month out of his check for health benefits he doesn’t use, plus we are paying retiree health-care premiums through our union, AND because I work for a very small company and have no benefits, I’m paying the [Medicare] Part B premium. I’m also still working full time. We have approximately $500,000 at a brokerage, and $30,000 combined in our checking accounts. Yet we worry all the time about running out of money in retirement, and so, we keep working. Our total [fixed] income should we quit altogether will be only $4,500 a month before taxes and insurance premiums. It goes without saying that we are at an income level that requires choosing a moderate lifestyle, which is what we are used to, anyway. But we are getting tired of the daily grind and just want to know when will it be safe for us to quit working? I guess the answer is just to always live within our means and keep our fingers crossed. There are no children, so we plan to not leave any money in the bank at the end.”

It might help to read: Saving for retirement is hard. Knowing how to spend it down is harder.

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