Category Archives: Pension

Enjoying Retirement With A Pension? Beware, Treasury Opens Door For Trouble

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Fortunate are those who can enjoy retirement with an employer monthly pension check. Especially from a fully funded pension plan. After years of dedicated service to an employer, the hard-won guaranteed retirement income for life is a valuable asset to have. Even if you don’t have a pension, you probably know a loved one that does.

Something happened on March 6, 2019 without any big announcement or fanfare – The TRUMp administration Treasury rolled back a retiree protection that had been put in place to head off abuse and scheduled to be cemented into policy. They ended rules preventing companies from buying out their retired employees monthly pension with lump-sum offers. Now the door is open for trouble down the road for contacted retirees who fail to properly evaluate and act when confronted with a pension buyout offer.

Enjoying Retirement With A Pension? Beware, Treasury Opens Door For Trouble

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Retirement With A Pension Is Now a Rare Benefit To Have

Companies have been cutting and ending pension benefits for decades. The pension promises to long-time employees are often broken, from benefit qualifying rule changes to bankruptcy reorganization. But even those who have retired with their earned monthly pension can be caught up with corporate efforts to reduce keeping up their end of the bargain. With today’s corporate environment and leadership dynamics, corporations just don’t want pension obligations on their books.

The corporate tool used to shed existing pensioners from their books was to off-load them to an insurance company through what is called pension de-risking. Instead of retirees having a monthly pension guaranteed by the PBGC, with de-risking they were moved to an insurance annuity with their limited annuity protections. But now corporations will have another available tool to rid themselves of pensions, they can make offers to buyout existing retiree pensions with what may appear to be a generous lump-sum. But is it really all that generous?

Why Does Offering Lump-Sum Pension Buyouts Open The Door For Trouble?

What’s the big deal? Many who have a pension benefit are allowed to make a decision at retirement time whether to take a lump-sum or the monthly annuity. They are often not equal, with one having a greater value than the other. There are a lot of considerations that depend on your unique situation to make that decision, like longevity and personal financial discipline.

Those same considerations are necessary for anyone contacted during their retirement with a pension buyout offer. But not everyone was given that annuity vs lump-sum option when they first retired and may be caught off guard. Being contacted now mid-retirement may be the first taste of this critical decision.  

What Needs To Be Considered

First, don’t be fooled by what looks like a huge lump-sum number. Fixed guaranteed monthly retirement income is a luxury that’s expensive to replace. The number offered is most likely insufficient to be fully equal to the real value of your monthly pension. Not to be cynical, but we need to consider that the lump-sum pension buyout offer isn’t out of love for the retiree. Also, especially with this administration, nothing is done by government unless- One, it is politically advantageous, or Two, it was heavily lobbied for by corporate special interest. This pension protection roll-back smells like number Two is smeared all over it. With that in mind….

Check The Lump-Sum Buyout Amount Through An Annuity Calculator

The lump-sum offer is supposed to replace your monthly pension. See if it is by checking an annuity calculator to verify if it could replace your full pension payment amount. Not that you want to take the lump-sum buyout to replace it with an annuity. But instead to see just how close the lump-sum amount is to being able to do so. Use your pre-tax / pre other deduction full pension payment amount. Include in your annuity comparison extras your pension may have like a survivor benefit, inflation protection, etc. The idea is to figure out if the lump-sum amount is really a good buyout offer that fits your unique retirement needs or quickly see if it’s a low-ball attempt to be rid of you.

Retirement Health Insurance

If you have a retirement health insurance benefit, then your premium is most likely deducted pre-tax from your pension check. Accepting the lump-sum buyout offer means your insurance premium would now have to be paid with after tax money from other sources. It might be very difficult to qualify for the schedule A medical tax deduction at tax filing time. Depending on how much you pay this may be something to take into consideration.

Get An Idea About Your Pension Health

As a retiree you most likely get a yearly update about your pension plan financials. Whether your pension plan is fully funded or underfunded, it may play into your decision. If it is underfunded and headed for failure it is guaranteed by the PBGC. You might want to see what the maximum PBGC payout amounts are for your situation if it was to ever go into default. Do some research to understand where the plan stands and where you stand if the worst should ever happen to the pension plan.

Run The Lump-Sum Amount Through A Retirement Calculator

A big lump-sum might look like a fantastic offer but will it be enough to continue funding your retirement?  You must roll the money into an IRA to defer being immediately taxed. It’s then part of your overall portfolio. Run your numbers through a retirement calculator to make sure it can even meet your needs for as long as you are on the planet.

Self Assess Your Risk Tolerance

Accepting the lump-sum buyout offer means increasing risk in your retirement funding. That’s the whole point of companies making these offers in the first place. It’s all about moving the risk from them to the retiree. There can be rewards with an invested lump-sum if market conditions are favorable. But the opposite happens during market and economic downturns. Decide if that is something you can or want to handle in retirement.

Evaluate Your Health and Longevity

If your health is failing then you might be tempted by a lump-sum buyout to leave something more behind for your heirs. There are also long-term care considerations. If you have no long-term care plan, your State may treat monthly pensions differently than lump-sum assets held in an IRA when it comes to Medicaid.

Talk With A Trusted Certified Financial Planner

Consult with a CFP before making any moves. They can weigh in on the offer and provide insight into other things that should be considered. They can show you the best portfolio diversification strategy to use. You can also see whether your risk tolerance favors either staying in the annuity or taking the lump-sum buyout offer. After all, you want to enjoy your retirement, not worry about your finances.

 

Don’t blindly believe a slickly worded pension buyout offer or any hard-sell limited time offer pressure. Do your research and consult with a CFP professional. The last thing anyone wants to do when contacted out of the blue with a pension buyout is to later end up regretting their decision.

Pension Eligible And Still Working? Maybe You Shouldn’t

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If you’re fortunate enough to be working somewhere that offers or offered pension benefits then congratulations are in order. Very few in today’s world have that level of retirement benefit anymore. But once you are pension eligible, is staying on the job to work longer instead of retiring the best way to go? Many times the answer is NO.

Pension Eligible And Still Working? Maybe You Shouldn’t

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Things To Consider Once Becoming Pension Eligible

Whether you have a defined contribution plan or a defined benefit plan, it will represent a big part of your retirement funding. Those who have enough in pension and retirement savings to retire usually do retire. But if you don’t and have decided to stay working, wouldn’t you want to maximize your pension benefit and future retirement funding?

Post Pension Eligibility Growth

You may be surprised at how little your pension benefit grows going forward. Once you’ve reached your pension eligibility milestone and get the big bounce, the additional years of service may offer very little if any growth. The first step is checking with your company’s pension administrator or HR benefits representative to find out what your pension estimate is. Then find out how much it increases if you stay on the job.

For instance, where I worked, you were fully pension eligible with 30 years of service regardless of your age. If that happened before reaching age 55, then your pension would grow 3% a year until age 55. But after that it was based only on salary increases and your highest consecutive 5 year salary averages. It took big raises to move that needle.

Frozen And Going Nowhere Fast

For many, this little retirement benefit investigation starts right away with bad news. You’re reminded that your pension was frozen by your employer. Meaning that it won’t grow at all or may grow far-far less than their pre-freeze pension rules over the time we stay. That pension benefit then becomes negatively affected by inflation before we even collect a single penny.

 

Got Retirement Benefits? Don’t let them sit, let them rip!

Once we reach pension eligibility, whether it is frozen or not, decide if the rate of growth is too little to make it worth staying. The pension benefit growth rate is nothing we have control over. Why not pull it out and put our retirement benefit to work for us? Maybe pulling your cookies out of their cookie jar and rolling them into your own IRA cookie jar to control investment direction or beginning your pension annuity payment now is the better retirement strategy. Don’t underestimate the power of working and collecting a pension check to invest or a lump sum to rollover to supercharge your retirement savings. If you are going to work anyway, this strategy of changing the scenery is all about giving yourself the chance to grow your retirement portfolio.

 

Why Are You Still Working There Instead Of Taking Your Pension And Running?

Need To Work Longer

There are many reasons why someone who has a pension benefit needs to work longer. From simply wanting to still work to needing more time to meet retirement financial targets. But nothing says you have to stay at your same job and company to meet your goals. This is a great time to pursue opportunities in the same industry with a different company or go in a new direction and do something completely different. The best time to find a great job is when you have one. Consider looking and applying for outside opportunities while on your job. See what’s available, choose the perfect position, and understand your options. Then once hired, announce your retirement and apply for your pension and other retirement benefits.

Love What You Do

Perhaps you stay because you love what you are doing. Do you think that you would love doing it just as much somewhere else? Especially when knowing that you have taken control of your locked up pension and have the chance to better grow your retirement portfolio?

Coworker Friends

Is a big reason you are there due to friends you have on the job? Nothing says you can’t stay in contact. In fact, your being at a different company will add a whole new dimension to your conversations. Taking your pension and running will also allow you to easily expand your social circle and professional network.

Comfortable

It can be very comfortable working a job you know from end to end. But be honest with yourself. Do you sometimes feel like you are stagnate? Starting a new job will be exciting and carry a bunch of optimism about your future. True, it will also bring some discomfort from temporary stress until you learn the ropes. The key word here is temporary. A little stress early on and before you know it your comfort will return. Start thinking about the possibility of personal growth through a new job.

Lucky Are The Few With Retirement Health Insurance Benefits

If you have retirement health benefits, you are open to look for a lot more opportunities since health care won’t be a target factor. If the position offers employee health insurance benefits, you can explain that you have coverage. Then try to negotiate your salary up because you won’t need theirs. Being able to accept any position whether they have health insurance benefits or not is a huge advantage. Obviously if you don’t have retirement health benefits, limit your opportunity search to companies that offer employee health coverage. If starting your own business, expanding an existing side hustle, or choosing an opportunity without benefits, check for all available health insurance options. Consider the cost of health care in your decision.

Pension Eligible – Should you stay or should you go?

There’s nothing wrong with being pension eligible and still working for your same company. But maybe you should really consider taking your retirement strategy to the next level by retiring and moving on. This strategy isn’t theory. I was in a pension plan that kept changing the rules, converted many employees from a defined benefit to a defined contribution plan, denied others completely, and then finally froze it. I retired a young 51 and have enjoyed and benefited from my retirement gigs and a short but sweet encore career. While I was doing that, I used what pension cookies were left to me to grow in my cookie jar and executed a strategy to increase my net worth.

If you are pension eligible where you work, take a step back from the same-old same-old and see if you could be doing something better for your eventual retirement. Then do some research and check available opportunities. If you need it, even if for nothing more than a confidence boost, consult with a CFP for some financial advice. Even if you decide to stay after doing all of that, then you will at least have the knowledge about your pension going forward. That way you can proactively close any discovered pension growth deficiency by setting aside additional savings on your end.

Do You Have a Forgotten or Lost Pension From Your Past?

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How to Find an Old Pension

A forgotten or lost pension is a reality for many people. Unclaimed pensions total in the hundreds of millions of dollars. It’s no secret. Company provided retirement pensions have been in a steep decline over many years. But if you started working decades ago there is a chance a company you worked for had a pension benefit. Pensions used to be offered by many companies from retail stores to building/construction companies. My uncle earned a small pension from a little shipping pallet manufacturing company. A job that he worked as a retirement job.

Forgotten or Lost Pension When we are young the thought of retirement is far off. We certainly had other concerns and priorities. When we are Retirement-Unaware it’s easy to not pay attention to long-term company retirement benefits. It’s worth your while doing a little research. Especially if you have no memory of whether your long ago employer offered a pension benefit. Even a small amount of recovered long forgotten or lost pension is a beneficial retirement find.

Finding a Forgotten or Lost Pension

I hadn’t given this subject much thought. That is until a Leisure Freak site reader left a comment on the Pension De-Risking post. He had stumbled upon a forgotten pension when he looked into buying and annuity. That made me think about looking into one of my own long ago employers. I was curious to see if I had forgotten retirement money waiting to be found.

In my early working years I had two different past addresses and in a different state than where I live now. It would make sense that it might be difficult to find me if my previous employer tried to reach me.

Believe it or not, the company, PBGC, or the insurance company holding your long-lost annuity or pension wants to hear from you. They have a legal obligation to hold your money as an unclaimed pension and attempt to find you within the legal guidelines.

What to Do:

Prior Employer is Still in Business-

If you are fortunate your ex-employer is still in business which will make your search easier. You can do an online search to see if they offer retirement/pension benefits. However what they offer employees today doesn’t mean it will match what was offered when you worked there many years ago. You must be specific in your search for ancient benefits which may be difficult to find.

Your retirement treasure hunt is as simple as contacting it’s human resources (HR) department. Then ask about their retirement pension benefits and vesting periods (qualifying length of employment) during the timeframe you worked there. If you determine that you may have qualified for the benefit then ask for the plan administrator. Hopefully then you will be given a phone number or an email address to contact them and finish your long forgotten or lost pension search.

Prior Employer is No Longer in Business-

The forgotten or lost pension treasure hunt gets a little more complicated if your earlier life’s employer is no longer in business. It could have closed, went bankrupt, or was acquired by another company. Find out what you can from online searches. News of your employer’s demise or its acquisition/merger may give clues to your next steps.

If an online search for your old employment company fails, then reach out to any former co-workers that stayed after you left. If they are outside your circle of friends after all these years, then use LinkedIn, Facebook, etc. to find them. Simply ask what they remember and whether your old company offered retirement benefits and/or a pension. If they are getting a pension earned from your shared old company then ask them where their payments are coming from.

Other possible contacts for chasing down an old employer:
  • Contacting the chamber of commerce of the city/town your old company was located.
  • If any of the employees were union represented, then contact the union. They may know what happened.

If you find that your old employer was acquired by another company, then call that new company’s HR group. The new company is responsible for the other company’s pension benefits.

However, if you find that your old company is gone for good then all is not lost.

Search the Pension Benefit Guaranty Corporation (PBGC) Website

The PBGC is a government agency which insures and guarantees private sector pensions. It administers payments for underfunded and terminated pension plans. On its main page there is an option under “Popular Tasks” – Looking for an Unclaimed Pension.

The Unclaimed Pension page has a search box where you can enter your last name, company name, or state. If your old company pension plan was underfunded or terminated then the PBGC takes over. If you find your name in their Unclaimed Pension search then follow their instructions to get your information to them.

You will have to prove you are who they have listed. Once confirmed you may receive pension payments from the PBGC, a private insurance company annuity, or money set aside by your old employer.

The PBGC also offers a very detailed PDF document called Finding a Lost Pension. Note: If the link I provided doesn’t open the page for display then Search “finding a lost pension” with your favorite search engine and select the pdf pbgc.gov link provided in the search results.

The PBGC knows many things but it only has knowledge of terminated pension plans. It also doesn’t cover Government pensions.

The Social Security Administration May Know About Our Forgotten or Lost Pension

When we leave a business where we have earned a pension benefit, the company is required to report any pension benefit to the SSA. Once we apply for our Social Security or Medicare the SSA is required to tell us about any pensions that were reported to them.

The SSA notification of a reported pension benefit doesn’t necessarily mean there is treasure due. For instance, it may have been paid out in the past and the SSA wouldn’t necessarily know about that. However the SSA notification will give enough information to help us find our forgotten or lost pension if we know we didn’t receive an earlier payoff.

The Social Security Administration has what we were paid and by whom for each of our working years. We may be able to get the employer identification number from the SSA earnings records to help us track down our pension.

File Form SSA-7050 for a copy of your earnings record. “Request for Social Security Earnings Information.” The form is available at www.socialsecurity.gov/online/ssa-7050.pdf, or call 1-800-772-1213. There may be fees associated for the request.

Other Resources to Find a Forgotten or Lost Pension

According to the PBGC Finding a Lost Pension PDF document the following agencies along with the PBGC mentioned above may be of help.

The U.S. Department of Labor (DOL) – Within the Department, the Employee Benefits Security Administration (EBSA) and EBSA’s regional and district offices provide assistance to individuals who are having difficulty with their pensions.

The Pension Rights Center (PRC) – The Pension Rights Center maintains an online clearinghouse called Pension Help America (pensionhelp.org). The Pension Help site walks you through a step-by-step process for getting information about your retirement benefits, including referrals to legal professionals. Or, you can e-mail PRC through their website at www.pensionrights.org/contact.

In Closing

Finding a forgotten or lost pension is like a retirement treasure hunt for anyone who lost track of their benefits.

I my case I found that the company I worked for decades ago had a retirement plan when I worked there but only for management. That must be why I really couldn’t remember anything about a pension benefit. I was not management.

I did find in the PBGC Unclaimed Pension search using my last name that a distant cousin was listed there. It showed his name along with the company he worked for. A company that is bankrupt and is no longer in business. I am in the process of contacting him to let him know.

I may not have found a forgotten pension for myself but at least some good will come from my treasure hunt.

Pension De-Risking Hurts Retirees

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Have you heard of the term Pension De-risking? The corporations may like what it does for their books about future obligations. But Pension De-risking Hurts Retirees. It is a corporate trend that has taken place in recent years. It consists of dumping their retirees from their earned federally protected pension plans. What they do is convert them into insurance annuities. Corporations have named this practice of dumping their retirees from their books as “Pension De-risking.”

This has happened to tens of thousands of retirees. Including retirees from Ford, General Motors , Verizon and most recently CBS. This is all about being good for the corporation, not the retiree. But then breaking promises is always for the benefit of the promise breaker.

Maybe there are very few today who have a pension anymore. If you don’t you could care less. But if you don’t have a pension you probably know someone you care about who does. Hopefully this information will have some importance to you as a corporate trend of negative retiree treatment to be aware of.

The Reason Pension De-risking Hurts Retirees.

Anyone with a corporate pension should be concerned about this practice. That’s because converting a federally protected pension to a State Governed Insurance Annuity means the loss of ERISA protection. ERISA was signed into law in 1974 by then President Gerald Ford. It has successfully protected retirees for 40 years. Conversion to an insurance annuity means retirees lose all the following:

  • All protections provided by ERISA’s fiduciary duty standards.
  • All ERISA mandated annual financial disclosures and reporting.
  • All ERISA protections mandating minimum funding thresholds.
  • All ERISA rights to ready access to the federal courts.

Retirees also lose beyond the ERISA protection. They also their Pension Benefit Guaranty Corporation (PBGC) coverage. Along with certain protections from creditors’ claims.

Why Corporations Dump Their Retirees through Pension De-Risking

It is all about the money. Strictly financial. A total focus on their finances, not the retirees. Many pension funds are underfunded. Corporations want to run from their responsibility for funding and maintaining a pension trust at the required level needed to pay previously promised retiree benefits.

They have found that they can legally set into motion Pension De-risking. They do so by converting their retirees from a pension to an insurance annuity. By doing so it removes the future liability which can improve their credit rating and lower their borrowing cost. Once converting retirees out of their federally protected pension plan the corporation also gets to stop paying millions of dollars each year in required premiums to the PBGC. So Pension De-risking not only hurts retirees but it also screws over the PBGC. It hurts the PBGC by reducing the amount of money it receives. The PBGC uses the premiums paid to it to cover the cost of the failed pension plans it has and must take over.

It is just the latest twist in retiree pension plan insecurity

Pension De-risking Hurts RetireesThe number of Corporations that provide defined benefit pension plans to its workers have been in steep decline since 1985. Hundreds of corporations have frozen their pension plans. Existing employees in frozen plans no longer earn more pension benefits. Freezing a pension plan also means any new employees cannot take part in the pension plan. Even if the overall pension plan isn’t frozen, it is very common for corporations to have locked out all new employees from joining any existing pension plan benefit.

This latest corporate trend of Pension De-risking by simply dumping retirees from their pension plans is just the latest downward pension security twist. Corporations rationalize breaking pension promises by saying “we are not in the business of providing pensions; we are in the business of making more money.”

While this is true. Try asking the corporate masters if the same pension elimination, freezing, and Pension De-risking treatment is happening to their executive pension benefit plan. They will say it isn’t because they have to continue paying them contractually.

In today’s world it is unheard of for a corporation to create a new defined benefit pension plan for its employees. However a golden pension benefit is still usually part of executive benefits being offered.

Recently a new set of mortality tables was adopted by the Society of Actuaries for pension plans to use. What corporations see is another 30 years or so of having to cover millions of retirees with a rising life expectancy. This new mortality table has added increased pressure on corporations already scoffing at fully funding their pension plans. This gives them an excuse to end their responsibilities for providing retiree pension obligations into the future. They do it by cutting a deal with an insurance company.

What Retirees can Expect Losing with Pension De-Risking

As mentioned above in this post. Retirees lose all protections and rights provided under ERISA and the PBGC. Once a retiree’s protected pension is converted to an insurance annuity by way of Pension De-risking their annuity is under state regulation. The annuity protections vary state by state. It depends on where the retiree lives. Protections are not provided in any uniform basis. It will be nothing like the uniformity of the PBGC protection. Where it provides a maximum yearly amount of guaranteed payment based on a number of  factors. Including the retiree’s age. Once under state regulated insurance annuity. The state guaranty association’s protection is limited to a lifetime amount. If the insurance company where the retiree’s pension has been off-loaded to comes under severe financial impairment or insolvency, the retiree’s protection coverage is decided by the state where the retiree lives.

State Protection Limits Example: (see table of coverage limits by state)
  • Thirty seven states, including Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, Oregon, North and South Dakota, limit coverage to a lifetime maximum of $250,000.
  • New Hampshire, Wyoming and Puerto Rico have a lifetime maximum of $100,000.
  • Utah limits lifetime coverage to $200,000.
  • Arkansas, Florida, Georgia, North Carolina, Oklahoma, Pennsylvania, South Carolina Wisconsin and the District of Columbia limit coverage for annuity holders in the case of a default or shortfall to a lifetime maximum of $300,000.
  • Connecticut, New Jersey, New York and Washington limit coverage to a lifetime maximum of $500,000.

To add complexity to this issue is the amount of state guaranty association coverage protection provided will change when a retiree moves from one state into another state. A person who retired in Connecticut would drop from their lifetime $500,000 coverage amount when moving to New Hampshire to a limited lifetime coverage of $100,000. That certainly would hurt a retiree’s retirement funding.

What is the risk of insurance company insolvency?

The PBGC always takes immediate and decisive action when any federally regulated pension plan fails. On the other hand state guaranty associations don’t like rocking the boat by taking quick action. That is because they depend solely on contributions from their member life insurance companies. There were two huge examples of this with the failures of Executive Life Insurance Company  and Executive Life Insurance Company of New York. It took over a decade for the state guaranty associations to address the problems resulting in retirees suffering significant payment reductions and payment disruption.

The other negative retiree impact of Pension De-risking: Protections from creditors

Once a retiree is dumped from their pension plan and converted to a group insurance annuity the monthly annuity payment may lose protections from creditors. Annuity creditor protection varies from state to state. Unlike a PBGC protected pension benefit, the annuity may be open to creditors to collect against their annuity payments.

In Closing

It’s obvious that there are some big negatives and new risks for retirees when they are part of Pension De-risking being switched to an insurance based annuity. Hopefully nobody gets placed with an insurance company that later becomes insolvent during their retirement. If you have a pension or know someone with a pension and hear anything about Pension De-risking or moving the pension to a state regulated insurance annuity then be aware that corporate Pension De-risking just moves the risk to the retiree.

Have you heard of Pension De-risking?

What are your thoughts about this new practice?

Do You Have Pension Envy?

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Do You Have Pension Envy? Maybe you have a friend or relative, someone you know, who  just lets it all hang out and flaunts it. Or maybe you sneaked a peek at some correspondence to now know they have a bigger source of guaranteed retirement income than you do. All because of a pension.

Are you feeling a little less endowed? Relax. Few people these days are endowed with a pension. That showy number you see now may have you feeling a bit small in the Financial Independence (FI) and retirement area. But most folks who are truly on the FI journey are Growers for when it counts, not Showers. It is easy to get over pension envy when you look at all the facts and rethink things.

Signs of Pension Envy

  • They showed you theirs but you won’t display yours. That is your financial plan or current retirement funding status.
  • You feel regret that you didn’t pick a career with a company or a government position that offered a pension benefit.
  • Whenever there is a news story or you hear about a company freezing, reducing, or defaulting on their pension plan you crack a smile inside. Taking secret pleasure in others pension woes is a sure sign of pension envy.
  • Whenever there is talk about a government employee pension plan (police, firefighters, teachers, etc.) being underfunded you begin to angrily worry. Worry about you as a tax payer having to help make up the deficiency though tax increases.

Nice Pension Pal. No wonder you are so confident.

People who purposely choose a career or company that offers a public or private pension benefit have to commit to 20 to 30 years or more to staying with that same entity to get it. Think about this for a moment. Those promises made to give that pension were made decades before. Now company private and even public pensions are under financial pressure. Making the future look grim or at least less than fully guaranteed for pensioners to collect their full promised pension amount for the rest of their lives.

Public Pension Woes

When pension deficiencies come up for the State or any public pension plan we all know tax payers will be on the hook for paying it one way or another. The Pension Envious scream no-way. They scream against pension promises. Even though they benefited from lower taxes due to the lower salaries paid (think teachers). When the time comes for these employees to retire and collect what is promised you hear from the pension envy crowd:  “I don’t have one so they shouldn’t either”.

Due to voter Pension Envy, many predict that even public pensioners will now be subject to reduced benefits if their pension plans go south. These pensions often fail due to the poor choices made by those in charge of the pension plan. You only have to look at the court wrangling going on in New Jersey 2015 to see it coming.

Private Pension Protection by the PBGC

Private company provided pensions have some protection provided by the PBGC. But even though someone’s pension payment is below the maximum payment allowed at the time of a default, that pension amount you are looking at, that amount causing you the pension envy, will be reduced. Reduced based on the pension recipient’s age at time of default and/or the plan’s underfunded level. What you peeked at now won’t necessarily always be the same as what you saw.

There is even concern that the PBGC has been stretched too thin. Stretched by all the pension defaults over the past few years and is itself in trouble. There is just no pension relief.

Do You Have Pension Envy? Pension Pluses and Minuses.

  • Minus- That Pension amount looks big and showy now but most don’t grow any bigger when it counts. Like in your old age. As rare as pensions are, pensions that pay any cost of living increases due to inflation are even rarer. The spending power of that pension amount decreases yearly and significantly over a decade and decades.
  • Plus+ Having that showy pension guarantees a date. You know when you reach your milestone age and years of service to become pension eligible. You can mark the date down and do all the necessary things to pull off an early retirement. Like saving, investing, budgeting, and being debt free.
  • Plus+ Having a guaranteed payment in retirement regardless of what the market is doing is a very powerful “chill” retirement benefit to have. It also allows you to be a bit more aggressive with your other investments. That could help cover for inflation. Of course that is if the pensioner saved any side money for their retirement.
  • Plus+ Having a pension benefit while working gives some peace of mind knowing you will have something to retire with.
  • Minus- Pension peace of mind while working is a double-edged sword. Most folks I know who have a pension benefit feel too comfortable about it.  They don’t save much more to go along with it. When I was ramping up my savings rate to 50% of my post-tax salary for retirement I was an oddity. I knew few future pension eligible people who tried to save more than 10% to 15% of their pre-tax salary for retirement. Many saved even less. For some, the reason for a low savings rate is they earn less salary because of having a pension benefit. They just have little left to save. I know teachers in this situation. For others, having that sense of being well-endowed pension wise causes a bad case of retirement overconfidence and savings neglect.
  • Plus+ If a pensioner lives a smart frugal and balanced life and saves something, Saves anything reasonable while still working. Then the monthly pension payment and what was saved will work. The worst case is having to wait until they qualify for Social Security before they can retire.
  • Minus- Those who were overconfident because of having a pension benefit and over-spend and under-save won’t be able to retire. Even with their pension and Social Security. Not without steep lifestyle downsizing. I know plenty in this boat.
  • Minus- If the pension plan is underfunded then that feeling of well-being may be a bit stressed throughout your retirement. Wondering and worrying if and when there will be changes or reductions in your retirement pension income.
There are no real guarantees

There are some pension guarantees although not reliably enough to leave all pensioners  unscathed and whole should the worst occur.

But then there are no guarantees with investing either for non-pensioners.

It appears that Life is risky no matter what we do. So we pick our poison and make the best of it. Given the uncertainty with pensions today there isn’t a reason to waste any of your life feeling envious.

Pension Benefit Trade-off

People who didn’t select a profession or career that included a pension benefit know they had to save for their own retirement. Hopefully they take advantage of every benefit and savings opportunity possible.

When on a dedicated FI journey, people without and even some of those with a pension learn to live a lifestyle that will result in financial independence and freedom. As far as working a career with a pension or not there are trade-offs to both approaches.

  • Less salary and golden-handcuffed to a company or government entity with a pension benefit.
  • Higher salary with job movement freedom and do it yourself retirement savings planning.

When a pension plan is fully funded then having a pension check come to you every month is the greatest way to retire. But those pension plans are getting very scarce these days. Even more so as time moves forward. A lot of the existing pension funds, both private and public, are sinfully underfunded. They should/will cause concern to anyone within those plans.

Even with a pension benefit, retirement saving is still necessary. Everyone struggles to find that balance and make enough money doing what they do to live their life and save for their future older-self.

In Closing

It is best that we focus on what we should and can be doing with what we have instead of being envious of someone’s pension benefit. Or being envious of someone’s anything for that matter. After all, pension envy isn’t going to be changing anyone’s financial situation or retirement readiness for the better. Envy is a waste of time.

If we have done what we need to do on our FI journey we can have just as much retirement pleasure as pensioners. It is done by living within our systematic or bucket withdrawal strategy from our retirement portfolio. We can always introduce an annuity into our retirement funding strategy if receiving a monthly guaranteed check is that important to us. FI means having options. Pension envy is not necessary.

Do You Have Pension Envy or any other feelings about those who have pension benefits?

Signs of Pension Plan Insecurity

Pension, Retire Early, Risk Tolerance, , , , ,

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?

Pension Tweak May Mean Insecurity for All

Pension, Retire Early

Pension Tweak May Mean Insecurity for All retireesThe recent Pension Tweak May Mean Insecurity for All retirees who are either retired or soon retiring with a pension. The new law was part of the recent $1.1 trillion last-minute spending bill that was just passed. Within it are new laws about underfunded multiemployer defined benefit pension plans and allowing the benefit to be reduced even for long retired participants up to age 80.

The targeted critically underfunded multiemployer defined benefit pension plans currently covers about 1 million people. Most people have thought having a pension was the most secure way to retire with guaranteed income coming every month. But things have been changing over the years to undermine that security for both public and private pensions. Public pension benefits appear to be the safest because they are guaranteed by state constitutions. But those in Detroit may disagree with that statement.

Many retirees and near retirees who have a corporate (private sector) pension have developed misunderstandings, sounded alarms and expressed concerns about the recently enacted federal law targeting multiemployer defined benefit pension plans. I want to share this brief report I received from a trusted retiree rights attorney. Hopefully this will clear up some misunderstandings about this new law.

Corporate Retirees Will Not be affected by the Multiemployer Pension Reform Act of 2014

But there are concerns (please keep reading).

As most retirees know, the Pension Benefit Guaranty Corporation (“PBGC”) was created to provide a backstop to pension plans whose employers or industries became unable to support the promised retirement benefits.  During the last several years, the PBGC has continued to face an ever increasing deficit.  In its latest annual report, the PBGC disclosed it is now facing a $62 billion deficit.  The biggest problem lies with multiemployer pension plans that are critically underfunded.

Last month, the PBGC issued a report indicating its multiemployer insurance program was almost certain to become insolvent in 10 years or less.  Out of the 1,400 multiemployer pension plans nationwide, there are about 200 plans involving 1 million participants that are at risk of being terminated.

The PBGC is worried about this situation

Worried because the PBGC becomes responsible for the pension obligations of failed pension plans.

For over a year, the “National Coordinating Committee for Multiemployer Plans”, a special investigatory committee comprised of multiemployer pension plans, unions, actuaries and financial consultants studied the problem. They ultimately published a comprehensive report in February 2013 with concise recommendations for federal legislative changes, so as to deal with the crisis.  See:  NCCMP.org solutions not bailouts talking points

The committee’s report entitled “Solutions Not Bailouts” eventually fostered proposed federal legislation.

On December 13, 2014, Congress passed the “Multiemployer Pension Reform Act of 2014.”  (“MEPRA”).

See:

https://www.pionline.com/article/20141222/PRINT/312229976/multiemployer-plans-can-cut-benefits-to-stay-solvent

MEPRA

MEPRA is part of a comprehensive $1 trillion government funding bill that President Obama signed into law on December 15, 2014.

There is a very controversial provision in MEPRA that gives trustees of deeply troubled multiemployer pension plans the ability to reduce some benefits (including retiree benefits in pay status), subject to various conditions and requirements.  MEPRA becomes effective in January and its primary objective is to deal with multiemployer pension plans that are in critical status (commonly referred to as plans in the “red zone”).

The most noticed and talked about feature of MEPRA, is that when a multiemployer plan is in “declining status”, i.e., less than 80% funded, the trustees of the plan may reduce some benefits, in order to avoid further insolvency. This feature has obtained the attention of social media and, presently, is being greatly misunderstood by many retirees.

Pursuant to MEPRA, the reduction of benefits can only be taken after all other reasonable methods have been taken by the trustees of the multiemployer pension plan so as to forestall and avoid insolvency.

Temporary Pension Reductions

When a decision is made to carry out a “temporary” reduction of benefits involving a multiemployer pension plan with 10,000 or more participants, the trustees must appoint retiree representatives to be advocates for the interests of the retirees.  There must be notice provided to participants, beneficiaries, contributing employers and the respective union representatives.

Also, when a decision is made to carry out a temporary reduction of benefits, the reduced benefit cannot fall below 110 percent of the PBGC guaranteed benefit.  In order to take this action, the trustees of the multiemployer pension plan must seek approval by the Internal Revenue Service (“IRS”).  And, even after IRS approval, the reductions cannot go into effect if a majority of plan participants vote to reject the reduction.

Participants can reject the reduction plan. The IRS can override

However, when the participants and retirees vote to reject the proposed benefit suspension, the IRS, in consultation with the Department of Labor (“DOL”) and the PBGC, must determine whether the multiemployer pension plan is “systemically important” which is defined as resulting in $1 billion or more in projected PBGC liabilities if the plan’s suspensions are not implemented.  In such extreme cases, the IRS, in consultation with the DOL and PBGC, will have discretion to accept the proposed suspension of benefits or modify the proposal in some manner to avoid pension plan insolvency.

Under MEPRA, disability pension and benefits for those over age 80 may not be suspended.   Also, there is complicated formula that gives some protections to retirees age 75 to 80.  And, as the funded status of the multiemployer pension plan improves, the reduced benefits are to be reinstated.

MEPRA does not apply to corporate sponsors of single employer pension plans.

MEPRA only applies to multiemployer pension plans.  Single employer pension plans, such as those sponsored and managed by corporations are subject to a different set of federal regulations and have higher funding-level requirements.

All said, Pension Tweak May Mean Insecurity for All retirees anyway

Nevertheless, it is fair to be critical of MEPRA, as it can only give many retirees a sense that this is a disturbing precedent and that “it’s going to lead to a society where nobody can depend on anything”, says Karen Freidman, executive vice president of the Pension Rights Center.

AARP opposed passage of MEPRA

The AARP stated in a letter to House and Senate members that “this precedent could have a detrimental impact on other earned pension and the overall income security of the nation.”

Predictably there will be many disputes concerning interpretation and operational issues about MEPRA brought by unions and retiree plan participants into the federal courts.

In Conclusion.

Regardless of how you feel about pensions in general, we all know people who worked very long careers to receive their promised benefit.  Many times it comes with a reduced lifetime salary because of that pension benefit. There is little that the employee or retiree can do when their pension plan starts reaching critical underfunding status and this law is there to avoid a total collapse of the PBGC and a huge government bailout because of some mismanaged underfunded multiemployer defined benefit pension plans.

The concern for all pensioners is the precedent being set and the fear that decisions made by corporations regarding funding or not fully funding their pension plans could be the next focus for similar laws. However for now the immediate impact is to those unfortunate 1 million people covered by the critically underfunded multiemployer defined benefit pension plans.

I had struggled to survive 30 years in order to get the pension benefit I was promised in exchange for accepting less than market salary during most of my career. Believe me that having to put up with corporate policies I could not morally support and a take-over by what I will say “I felt” was a corrupt company only supported by the fact the CEO was eventually convicted as a felon and sentenced to prison including some plea-deals from other executives.

My pension benefit was stripped to the lowest level legally possible. Of course there is a soft place in my heart for those who made the same long career journey and now through no fault of their own are going to be short-changed.

Staying and putting up with corporate nonsense as long as I did is the hardest thing that I have had to endure in my life aside from surviving my son’s passing. I say these things knowing full well that it shouldn’t be a burden to the tax payers to make whole but somehow I think there are some highly paid executives, both Corporate and probably Union that lined their pockets by setting policy that created this F’n mess yet nobody who wears thousand dollar and up suits are ever held accountable.

Your perspective, thoughts and comments are welcome.

Freezing Pensions Unlock Golden Handcuffs

Career, Pension, Retire Early,

Seems there are some more companies freezing their pension plan which was reported by various financial and business sites. But nobody is talking about how Freezing Pensions Unlock Golden Handcuffs. I can tell you from my experience that it is a big deal for an employee to come to grips with.

The latest articles was about Lockheed Martin Corp which happens to be the Pentagon’s largest defense supplier. They aren’t the only ones getting the frozen shaft. Boeing Co also recently announced the same thing.

I can tell you that there will be some key folks who have hung in there many years slogging away at these companies because of that pension benefit.  Just waiting to hit the magic number when they can retire with their pension. Once the hammer falls and the pension does freeze employees will no longer receive credits for age, years of service, and salary increases. If they reach pension eligibility before the freeze they will get whatever the pension calculation is at that time. Staying longer won’t increase it.

Freezing Pensions can Release Top Talent

Anyone should see that top talent might be getting some big retention raises because the golden handcuffs are off. I don’t know how Lockheed or Boeing handles this issue. But where I worked I accepted a lower salary to others in the industry because I had a pension benefit. I assume that the same is true with these two companies. But I will talk about this from my perspective when pension freeze happened to me and my coworkers.

Freezing Pensions Unlock Golden Handcuffs

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I worked for a Regional Bell Operating Company (ex-Ma Bell Telephone Company) for 31 years when the CEO called for an all-managers meeting. We watched as he did his thing. He then said the pension fund was hundreds of millions of dollars underfunded and they have no intention of adding another dime to it. It was to be frozen at end of year (this was November when he said this) and if you don’t like it you can leave. So I gave my early retirement notice right after the meeting. I retired for the first time at the age of 51. It was all I needed to take the leap.

You may be thinking that I was crazy. That I am impulsive to make a decision like that so soon after hearing what triggered emotions all around me. Let me give you some background.

What Happened at my Pension Freezing Company

I worked my way up to a Lead Engineer position. I did love what I was doing for many years. In the year 2000 when I was still eight years away from pension eligibility the company was taken over by a non-pension company. It was ran by a crooked CEO who as I write this is now a convicted felon. He was recently released from prison after serving 6 years or so.

In the two or so years he was at the helm he almost bankrupted the combined company. He also was paying out tens of thousands of laid off workers large severance packages out of our pension plan. I have no idea how he got Federal Government agreement on this. But hey, he is a criminal. So this total failure of a CEO with an ego the size of New Jersey is gone. If it wasn’t by brilliance and luck of the next CEO and his pal CFO the company could have tanked.

Laws were different in those crazy early 2000’s and all of our 401K match was in company stock. Anyone under age 50 couldn’t diversify it. Long story short we all lost most of it. I lost over 24 years of company match. What was once worth over $100,000 was worth about $7,000. That was 2003 or 2004. With a tanked 401K all I would say was I am glad I traded a higher salary all these years for a pension benefit. Little did I know then.

I Created My Early Retirement Plan

I started seriously planning my retirement for the day I became pension eligible and was already saving 30% of my salary and directing it to debt payoff and retirement accounts. By the time of the “pension freeze” announcement I had more than enough of this new company. A company that I didn’t recognize anymore. The passion and love was long gone and I was planning for career-divorce.

I had always planned on living a Retire Early and Often lifestyle. But when I reached Pension eligibility in 2008 the country was in a deep recession. So I stayed there waiting for the perfect time to leave.

Fast forward a year to November 2009 and those retirement trigger words from now the third CEO since the failed merger, “the Pension is frozen”. After hearing that, the little voice in my head said it was now the perfect time.

Because of the pension fund’s underfunded status I took a lump sum and fund my retirement with an IRA. I wanted as much financial separation from the company as I could get. I never looked back or ever regretted it. Sometimes it takes a small push to get people to move. Or in my case a couple of kicks to the crotch.

In Closing

I don’t know if the new Savings Plans at Lockheed and Boeing are crazy fantastic and everyone will be hugging and kissing each other to stay there. But I have a feeling there are some key people who will say, that was just the push I needed to retire early or go somewhere else and do something I can love. It is true, Freezing Pensions Unlock Golden Handcuffs.

Have you a story or comment about being released from the golden handcuffs?