protect your pension now

Take Steps to Protect Your Pension – Now

Protect your pension now. It’s no longer a time to let other people take care of you. You must take steps proactively to protect your pension. Other people may not be taking as a good a care of you as you’d expect. 

Rough Seas Ahead for Pensions?

(sorry this article is a bit rushed but I think the message is important and urgent!)

The time is urgent for you to investigate your pension. Not tomorrow, not next week. TODAY. It’s time to request your Summary Plan Description (SPD) and financial report.

Before I tell you some questions I think you should get answered, first let me tell you why you need to protect your pension whether you are a private company employee or a government employee.

First, many pensions are underfunded

What does this mean? It means that pension actuaries (i.e. math geeks like my friend Vin) figure out:

  1. How much money will be needed to fund all pension plan members in the future.
  2. And then they match the current balance + expected employer contributions going forward to see if they “match.”

Under certain regulations, for a pension to be considered “funded,” the % of current balance + (current value of)  future contributions must equal 90% or more of current liabilities. In certain circumstances, pensions can fall to 80% (under different terms that are too detailed to go into here). But this is dangerously low.

The problem is, some pensions are below 80% funded. And a few are well below. Underfunded pensions risk a take-over by the Pension Benefit Guaranty Corporation (PBGC).

Why does this matter to you?

First, Because the PBGC has a maximum guarantee amount and if your pension benefit is higher than that amount (currently $4,500/mo for a 65 year old), they will not cover your benefit above that amount! And forget inflation adjustments!

(see more info from PBGC HERE on this topic)

Also note: if you are a government worker, your benefits are a target of national ire. There are possibilities of municipal bankruptcies (ch. 9) to void labor agreements and that means reduced benefits. (FYI: see this site for people that want pension reform – they track pension news in California and nationwide:

Second – in other countries, governments are seizing government worker pensions and using them for other purposes. There was talk of things like this in the US by people who had the previous President’s (Obama) ear.

Recently in France, the government redirected pension assets into other government purposes (see article HERE). Argentina has been working on this since last year. Ireland and Hungary both announced plans to redirect pension money. In my eyes it seems like indirect attempts to fund the banks. (just an aside: Amazing how hard politicians work to keep the banks in business).

Furthermore, Professor Teresa Ghilarducci, who had former President Obama’s ear, wanted to do a similar thing here. She doesn’t say she wants the US gov’t to seize our pensions, but she wants people’s pensions to be gov’t funded and guaranteed (see her profile HERE). That’s all well and good, but that’s basically a European style system. She says the benefit could be paid for by eliminating tax breaks on 401ks and IRA’s. But you know government. Will those offsets really be used by the pension? Do gas taxes really go to fixing bridges and roads?

Bottom line – your retirement assets will be someone else’s (gov’t) OBLIGATION. There won’t be assets to back them. In my opinion, it will resemble social security. How? The government uses social security taxes to fund general government expenses and issues social security “paper” i.e. gov’t debt to cover it. I think people are learning that in this era of optional obligations, that may not be a good thing. If you sell your things at a certain profit, here’s a guide on calculating capital gains tax.

So have I convinced you to check out your pension yet?

Here’s what to find out from you Summary Plan Description (SPD) or from the HR benefits manager:

  1. The mechanics of qualifying for your benefit (if you’re not there yet)
  2. What you get (% of salary)
  3. Survivorship/spouse options
  4. Who are the plan trustees (if private company)
  5. Vesting schedule
  6. Does the pension pay PBGC premiums (is it PBGC-backed)?

Here is the financial information you need:

  1. What is the current funding level of the pension (80%? 90%? 66%?)
  2. Who manages the funds?
  3. Did your company (gov’t employer) contribute the required contribution in the most recent period?
  4. Find articles from credible sources on latest news on your employer through a google search or such
  5. How is your company, city, organization doing overall?

Remember if your pension benefit exceeds $4,500 and you are age 65 or above (the benefit guarantee is lower for younger people), you must be extra cautious. The amount over $4,500 will not be insured according the the PBGC. The more common recipients of high-paying pensions are airline pilots in the private sector and municipal managers. This includes higher paid police officers, and perhaps physicians in a county/muni system.

Protect Your Pension: Summary

Pensions are a problem. They are a problem to revenue-starved government entities and to struggling companies. And hence, if you have a pension, it could be a problem for you too.

In my opinion, I am not worried about Federal or state pensions, because they can always raise taxes  – sales taxes, gas taxes etc. or print money. I am more worried about corporate pensions and local/city pensions.

I have no idea how all if this could play out, but what I am seeing across the US and globally is not reassuring. Therefore, prudence forces me to recommend you audit your pension. Yes you. Remember when the Federal Reserve audited banks and said the subprime crisis was “contained?” Well that’s not the kind of audit I’m talking about. I’m talking about one that’s based on facts and uses reason.

I think it’s worth asking your accountant or financial advisor to review your pension if you don’t feel like doing it yourself and get the questions above answered. Isn’t your retirement security worth it? GET ANSWERS AND SEEK PROFESSIONAL ADVICE!

Thanks for reading.

Chris Grande

Protect Your Pension: Action Steps for you

Have some questions? Want to run thoughts by an experienced team of financial professionals? Contact us using our contact form HERE.

For an example of a crackdown on pension mismanagement by garment companies go HERE

For more information on Chris Grande, go HERE.

for more information about Walnut Hill Advisors, LLC, a financial planning and investment management firm in Medford, MA near Boston (also available some of the year in the SF Bay Area, Florida, Maine, Rhode Island) go HERE.

For more information on our client process, click HERE.

For other articles written by Chris on pension-related topics try:

Individuals Must Create Their Own Pensions – But How?

Convert Your Bond Portfolio to a Baseline Pension

See my disclaimer here – please consult a professional advisor before making a financial decision