One of the questions I am often asked is why I decided to fund my early retirement on my own instead of just taking the Corporate Pension payment (annuity) every month. The reason was there were many Signs of Pension Plan Insecurity. I made a decision based on those signs and my feelings about the company I was retiring from.

If you have a pension benefit associated to a government position then some of this information will not totally apply to you. But there are some warning signs here that you may also be on the lookout for.

If the pension plan you are under becomes underfunded there could be risk of losing some of your benefit. If you are still working and not yet fully vested (age + years of service) to receive your pension but striving toward that goal. Then even if the pension fund isn’t in financial trouble you can still end up being reclassified as far as eligibility and status which can also lower your benefit.

Here are some Signs of Pension Plan Insecurity to watch for:

A Company Merger or Being Taken Over with a Change of Leadership.

This was my first sign with the company I had already put in 20 years with. But I was still 10 years away from my full pension benefit. Our pension was considered over-funded and secure as secure can be. But the new company didn’t offer pensions to their employees and thus started some big changes.

Shortly after the so-called merger an announcement was made to all the conquered company employees. They stated that if you didn’t have 20 years of service on December 31 of that year you are frozen at that time and service. You will be put on a much less generous defined contribution plan.

Then all the merger synergy related layoffs began. Because of the pension over-funded status the company received the federal government’s blessing to offer lump sum severance packages to tens of thousands of laid off employees from the pension fund. They did this instead of paying it out of the corporate funds. This drained the pension fund down very quickly because the severance pay was a full year’s salary for most (I heard to decrease lawsuits).

The new company had no legacy feelings about a now small group of employees with a pension benefit. It was not anywhere on their priority list.

In short— Beware of the 3 following clues

Be on alert if your company is taken over by a company that doesn’t provide employee pensions

Caution is the word if they don’t believe in pensions or if they do have a pension benefit but their pension plan is underfunded. The merged company can legally mix the two pensions together. That can cause what was once a fully funded pension plan to be dragged down with the other. In any case the new guys could care less about your pension and the deal you signed on for years or decades before.

Be on alert if your company pays out lump sums from the pension fund for non-retirement costs.

Watch out if your company uses your pension fund instead of using money from the general corporate funds for severance pay to the laid off employees. Or starts offering special early retirement or severance incentives for people to leave which can severely drain the pension fund.

Be on alert if your company starts creating multiple employee benefit types.

Be concerned if your company creates multiple employee benefit flavors by abruptly reclassifying eligibility requirements and moving people to a less generous defined contribution plans or no new plan at all. Establishing multiple employee benefit layers could be a bad sign.

Whether there is a company merger, buy out, or not, be on alert if you find the company division you work in is spun off or is sold.

Companies normally do that to their under-performing segments of the business and load them up with retirees but without the funds to pay the promised benefits.

The Company’s Revenue is Sinking.

The company I served for 31 years was a legacy land-line telephone company. It’s bread and butter was always land-lines. But the world evolved and now only wanted wireless cell service. The business model that worked for decades was done and although providing DSL to a data hungry public was taking off. It didn’t make up for the dropping land-line revenue.

There was constant layoffs and they were always explained as being due to lost customers. Their next move didn’t come as a surprise. It is a move financially struggling companies usually start with. That is freezing the pension. Funny it is never decrease executive pensions, stock options, or obscene salaries. I digress….

Whether the pension is the drag on the bottom line as they try to make it or they are just taking advantage of the situation to kill the pension funding issues once and for all, it has huge impact on your benefit. Especially if you haven’t reached pension eligibility yet.

My company CEO told us the pension was tens of millions of dollars underfunded and they have no intention of adding another dime to it. If we didn’t like it we could leave. That kind of talk is another bad sign.

Recap — Beware of the following 4 clues

Be on alert if your company revenue and finances are in trouble.

Regardless of whether you pension is underfunded or not, the company can target it as a cost they just don’t want to deal with anymore and freeze it.

Be on alert if your company starts tough talk about your pension fund status.

Especially if the word is it is substantially underfunded.

Be on alert when someone at your company’s executive level tells you of a benefit reduction.

Whether it’s your pension or another retirement benefit. Like ending 401K matches. Especially if it’s followed by a comment like “if you don’t like it hit the bricks”.  Your pension benefit may be in real trouble.

Be on alert if you receive a Participant Notice.

By law if your company pension becomes heavily underfunded during the year (20%) then you have to be officially notified with a Participant Notice. That is a sure sign of a pension insecurity alert.

Bankruptcy

Obviously if your company goes bankrupt you may have some big pension trouble. Bankrupt companies usually always terminate any pension plan benefits they have. If your company was filing under Chapter 7 any pension plans must be terminated along with the company liquidation to pay creditors. Not only did you lose your full pension but your job too.

Filing under Chapter 13 and the pension may just be frozen. Or it could still be terminated but handed over to the Pension Benefit Guaranty Corp (PBGC) to take over the fund and the retiree payments. Your benefit will be reduced depending on your age and the amount the plan is underfunded. The PBGC is better than a poke in the eye. But it does mean you will be retiring with less than you planned for.

Form 5500 – Pension Health Report

If you work for a company that provides a pension benefit to you. Then always check the yearly Funding Notice your company must send out about the pension funding status. If you have more suspicions than that easy to read notice tells you then you can request the pension financial form filed with the government each year called Form 5500.

Form 5500 is like reading through a hundred page corporate income tax filing. These usually come out almost a year after the year that is being reported. I can usually find these on-line by searching for by company name and Form 5500 or Funding Notice.

There isn’t much you can do if you find your pension plan sinking but to save as much as you can and decide if sticking around is worth waiting for a diminished pension. You may do better if you have other better paying opportunities available. Or opportunities that you would be passionate about pursuing.

What has happened To my old company

As to the company I retired from and their pension benefit. The salaried employee pension plan is still frozen. No matter how many extra years people put in or salary raises they get the benefit is frozen. It stays at the same amount to whatever they had up to Jan 1, 2010. It never paid a cost of living raise so taking the annuity option means a pension payment that grows smaller in spending power every year even before they retire.

The company has since been taken over by another company. Now pension eligible employees are twice removed from the company that made the pension promises. This new company now reports that the pension is fully funded. But in their yearly Funding Notice report they now also list within a section spelling out the conditions where they can terminate the plan. That they have the legal right to terminate it and hand it over to an insurance company if it is fully funded.

Update- in 2015 they were allowed to combine all of their conquered company pension plans into a new single plan. At this time the pension is listed in their documentation as underfunded.

Who knows which direction they will go? I took the lump sum which was considered as less value than the annuity at that time. I invested it within some IRAs. I would rather take my chances this way than be tied to the whims of a company I never worked for. No way I wanted to be tied to a company with all the signs of being one that I couldn’t count on for the long haul.

Do you work for a less than solid company that provides a pension benefit or know someone who does?

Did you or someone you know have their pension terminated and handed over to the PBGC?