Retiring August 31, Company terminating pension plan

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Summit111
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Retiring August 31, Company terminating pension plan

Post by Summit111 »

Fellow Bogleheads,

I've been with Mega Corp for over 30 years and plan to retire August 2015. Just recieved a "Notice of Intent to Terminate the Pension Plan" effective 2016. They are filing information to the IRS and Pension Benefit Guaranty Corporation (PBGC). Seems like many companies are moving to this.

Mega Corp goes on the state that "This termination in no way affects your rights to financial benefits you have earned under The Plan - You are 100% vested in your benefit."

From what I've been able to learn by various subject searches, they are positioning themselves to either purchase an annuity from an insurance company for a monthly payment, or allow me to take a lump sum payment. If I choose a monthly payment, it would not be protected by the PBGC, only a State Agency.

If I take a lump sum, I would have to receive a 7% return to equal the monthly payment.

Actionable Items:
What should I be concerned with in the coming announcements? Should I take the lump sum and be done with it? What sort of "due dilligence" is required when I get the name of the insurance company?

Thanks,
Summit
“Got my mind on my money, and my money on my mind!” Snoop Dog
Gleops2
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Re: Retiring August 31, Company terminating pension plan

Post by Gleops2 »

If you retire in 2015 and they intend to eliminate the pension in 2016, how does that affect your monthly payment if you take the pension?

Doesn't that mean people retiring after jan 1, 2016 will not be eligible for the pension, just perhaps a lump sum or cash balance?

If you start to collect the pension in 2015, I don't think that means in 2016 you'd have to take an insurance company annuity.....
Gleops2
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Re: Retiring August 31, Company terminating pension plan

Post by Gleops2 »

If you retire in 2015 and they intend to eliminate the pension in 2016, how does that affect your monthly payment if you take the pension?

Doesn't that mean people retiring after jan 1, 2016 will not be eligible for the pension, just perhaps a lump sum or cash balance?

If you start to collect the pension in 2015, I don't think that means in 2016 you'd have to take an insurance company annuity.....
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cheese_breath
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Re: Retiring August 31, Company terminating pension plan

Post by cheese_breath »

I faced the same situation as a GM retiree. In my case GM gave me a personalized letter offering several choices including lump sum and three different annuity options. I chose the annuity providing the same benefits and payments as my GM pension. Certainly the insurance company they choose could have a big influence on your choice. My annuity is with Prudential so I'm not too concerned about it's security. Don't do anything prematurely, and keep us updated as you learn more of the details. When do you have to make your choice?
The surest way to know the future is when it becomes the past.
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cheese_breath
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Re: Retiring August 31, Company terminating pension plan

Post by cheese_breath »

Gleops2 wrote: If you start to collect the pension in 2015, I don't think that means in 2016 you'd have to take an insurance company annuity.....
Not necessarily. I was already collecting my GM pension when they terminated the plan, and that included current retirees.
The surest way to know the future is when it becomes the past.
Leeraar
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Re: Retiring August 31, Company terminating pension plan

Post by Leeraar »

"Terminated" is a relative word in this respect.

It probably means "suspended" or "frozen". No more contributions, no more accrued benefits.

You cannot be forced to the PBGC unless your plan fails, by which it means the company goes bankrupt. The PBGC site is easy to use: Check what your benefit might be if the plan goes under. Your PBGC benefits depend on the date the plan fails, not your date of retirement. Younger employees, or executives with non-covered benefits may lose in a big way.

Your company essentially has to go bankrupt for your pension to go to the PBGC.

Like cheese_breath, I am a GM retiree who was offered a lump sum after I retired. I refused the offer, and was handed a Prudential annuity that exactly matches my previous GM pension. I am quite happy and satisfied with this.

The best investment decision I ever made: When GM offered me the lump sum, I posted the exact numbers here, on this site. The Bogleheads analyzed the offer every which way, and my best choice quickly became clear.

Some years later, the Wiki entry "Lump Sum vs. Pension",
https://www.bogleheads.org/wiki/Lump_sum_vs_pension
provides an excellent road map on how to make a decision on this issue.

Best wishes, and good luck,

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
Leeraar
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Re: Retiring August 31, Company terminating pension plan

Post by Leeraar »

Summit111 wrote:From what I've been able to learn by various subject searches, they are positioning themselves to either purchase an annuity from an insurance company for a monthly payment, or allow me to take a lump sum payment. If I choose a monthly payment, it would not be protected by the PBGC, only a State Agency.
Under the law, they can simply buy you an annuity that matches your pension and, essentially, force you to an insurance company, You do not have to agree.

Or, they can offer you a lump sum according to some formula which is not based on the market value of your pension.

Think about it: Why would they offer you a lump sum if it is greater than the cost of your pension as an annuity?

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
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Summit111
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Re: Retiring August 31, Company terminating pension plan

Post by Summit111 »

Mega Corp is doing well financially and is a publically traded company on the S&P 500. Not close to bankrupt. They are releasing more info next month and to finalize the plan termination in early 2016.

I can control my retirement date and am thinking about delaying it until I get a clear picture of the whole situation. I'm leaning toward the monthly payment, if, and a BIG IF, the insurance in in excellent financial shape.

How should I judge the annuity and insurance company?

Thanks
Summit
“Got my mind on my money, and my money on my mind!” Snoop Dog
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cheese_breath
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Re: Retiring August 31, Company terminating pension plan

Post by cheese_breath »

I guess you can start with the four ratings agencies... A.M. Best, Fitch, Moody’s and Standard & Poor’s.
The surest way to know the future is when it becomes the past.
rgs92
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Re: Retiring August 31, Company terminating pension plan

Post by rgs92 »

Verizon has also done this. They turned over their pension to Prudential, so now it's just as if you bought a fixed single premium annuity from Prudential. It's true you lose PBGC coverage or protection, but normally the insurance company is so safe you don't have to be concerned. I believe there was a ruling by the labor department that this was a legal action by the company, but it was never tested in court as far as I know.
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Christine_NM
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Re: Retiring August 31, Company terminating pension plan

Post by Christine_NM »

Another data point -- my pension has been paid to me monthly in the form of an annuity from Prudential since I retired 10 years ago. Thankfully I had no lump sum option or I might have been tempted to take it.

However, PBGC still lists my employer as eligible for coverage. It's a nonprofit funded mostly by DOE and DOD, so maybe that makes a difference. Or maybe PBGC's information is way out of date.
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cheese_breath
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Re: Retiring August 31, Company terminating pension plan

Post by cheese_breath »

Summit111 wrote: ... I can control my retirement date and am thinking about delaying it until I get a clear picture of the whole situation. I'm leaning toward the monthly payment, if, and a BIG IF, the insurance in in excellent financial shape...
I suppose it couldn't hurt to hang around a few more months if it made you feel more comfortable. But (and this is pure speculation on my part) from the retirement plan perspective I can't imagine those not yet retired would be offered any different options than those already retired. (*****) OTOH, is your employer in the habit of offering early buy-outs? What are the chances if you do hang around you'd be offered an additional incentive to retire?

(*****) edit: To clarify, by "those not yet retired" I'm referring to individuals who haven't retired yet but will retire before the existing plan is terminated. Those still around after the existing plan is terminated may be enrolled in a different plan, or not, but they would not qualify for this offer.
The surest way to know the future is when it becomes the past.
ralph124cf
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Re: Retiring August 31, Company terminating pension plan

Post by ralph124cf »

The company may certainly buy an annuity that will pay you your expected benefits, and you do not have a choice about accepting it, unless you want a lump sum and they are offering it.

HOWEVER, this does not let the company off the hook with respect to your pension. Your employment contract was with your company, not the insurance company. If the insurance company goes bust, then your company is still on the hook for paying you. If your company goes bust, then the PBGC backs up the company.

Ralph
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cheese_breath
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Re: Retiring August 31, Company terminating pension plan

Post by cheese_breath »

ralph124cf wrote:The company may certainly buy an annuity that will pay you your expected benefits, and you do not have a choice about accepting it, unless you want a lump sum and they are offering it.

HOWEVER, this does not let the company off the hook with respect to your pension. Your employment contract was with your company, not the insurance company. If the insurance company goes bust, then your company is still on the hook for paying you. If your company goes bust, then the PBGC backs up the company.

Ralph
The documents for my GM retirement plan termination clearly state that after the plan is terminated and turned over to Pru it will no longer have PBGC backup.
The surest way to know the future is when it becomes the past.
Leeraar
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Re: Retiring August 31, Company terminating pension plan

Post by Leeraar »

Christine_NM wrote:Another data point -- my pension has been paid to me monthly in the form of an annuity from Prudential since I retired 10 years ago. Thankfully I had no lump sum option or I might have been tempted to take it.

However, PBGC still lists my employer as eligible for coverage. It's a nonprofit funded mostly by DOE and DOD, so maybe that makes a difference. Or maybe PBGC's information is way out of date.
I am pretty sure that the documents I signed let GM off the hook. The PBGC is out of the picture and, if Prudential goes bust ...

Well, I believe Prudential is too big to fail.

By the way, not all GM pensions went to Prudential, so far as I know. In some cases where a divorced ex-spouse has a claim on the pension, GM did not offer the lump sum. Also, the lump sum offer only went to salaried retirees. It will be very interesting to see what happens with union (UAW) pensions with the new contract agreement later this year.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
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cheese_breath
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Re: Retiring August 31, Company terminating pension plan

Post by cheese_breath »

Leeraar wrote:
Christine_NM wrote:Another data point -- my pension has been paid to me monthly in the form of an annuity from Prudential since I retired 10 years ago. Thankfully I had no lump sum option or I might have been tempted to take it.

However, PBGC still lists my employer as eligible for coverage. It's a nonprofit funded mostly by DOE and DOD, so maybe that makes a difference. Or maybe PBGC's information is way out of date.
I am pretty sure that the documents I signed let GM off the hook. The PBGC is out of the picture and, if Prudential goes bust ...

Well, I believe Prudential is too big to fail.

By the way, not all GM pensions went to Prudential, so far as I know. In some cases where a divorced ex-spouse has a claim on the pension, GM did not offer the lump sum. Also, the lump sum offer only went to salaried retirees. It will be very interesting to see what happens with union (UAW) pensions with the new contract agreement later this year.

L.
I think the key is when GM terminated the plan all of the accrued benefits were paid out to the employees... ie. we got everything that was due us (even though some of us may disagree with that). GM gave me the option of taking my payout as a lump sum to do with what I wanted, but they also gave me the option of putting it into a Pru annuity. I wonder if it would have been different with PBGC if they hadn't offered the lump sum and forced me into the Pru annuity.
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Frugal Al
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Re: Retiring August 31, Company terminating pension plan

Post by Frugal Al »

Summit111 wrote:What should I be concerned with in the coming announcements? Should I take the lump sum and be done with it? What sort of "due dilligence" is required when I get the name of the insurance company?
Every case is different, and there's not necessarily a right or wrong answer for everyone, especially with such limited financial information. Be certain you're comparing apples to apples, with the lump sum payout compared to 100% survivorship payout, assuming you're married. What's you're SS strategy? Are you in good health? Do you have legacy intent? If it wasn't for the pension being due at this time, would you take your hard earned money and buy an annuity with it under the terms offered. We don't know your age, but at normal retirement age the 7% payout isn't bad.

After reading about how some insurers are handling their reserves and "captive reinsurance" these days, there is reason to be leery of too much reliance on some of these life/annuity companies. http://www.nytimes.com/2015/04/12/busin ... .html?_r=1
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