Tag Archives: Pension Annuity

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

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.

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

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.

Signs of Pension Plan Insecurity

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?