Strength of Pension Plan

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JoeM 2018
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Joined: Mon Mar 21, 2016 4:10 pm

Strength of Pension Plan

Post by JoeM 2018 » Mon Mar 21, 2016 4:14 pm

Hi, I am about 2 years away from retirement. When I retire, if nothing changes, I will have the option of taking a monthly payment, or a total buyout of the pension. How do I research as to how well the pension plan is funded ?

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Taco Knight
Posts: 187
Joined: Mon Apr 06, 2015 11:02 am

Re: Strength of Pension Plan

Post by Taco Knight » Mon Mar 21, 2016 4:35 pm

Is it a government or quasi-government pension or private? The former are established by law and can be accessed freely. Which doesn't mean easily. The latter (and the former) you should contact the office that administers it. If you don't know their info, your HR department would.

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mister_sparkle
Posts: 221
Joined: Wed Dec 11, 2013 5:58 pm
Location: Chicago

Re: Strength of Pension Plan

Post by mister_sparkle » Mon Mar 21, 2016 4:36 pm

I believe your employer should be providing an audited update of plan information, including funding %, once a year.

alex_686
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Joined: Mon Feb 09, 2015 2:39 pm

Re: Strength of Pension Plan

Post by alex_686 » Mon Mar 21, 2016 4:42 pm

Most pension plans have to post an annual report.

The report should indicate at what level it is funded. Anything below 80% should be a yellow flag.

What discount rate is the plan using? The correct conservative rate is between 3 to 5%. Long term inflation is predicted at 1 to 3 %. Long term corporate bonds, a proxy for safe investing, is around 2 to 3%. Many funds quote a higher figure, like 7%. The higher the discount rate the smaller future liabilities are, the lower the current liabilities look, which flatter the plan.

These 2 are hard numbers you can work of off.

How is the fund being invested? The greater the number of "retired lives" or "vested" amounts the more bonds the fund should have. However, this requires actuarially work which is beyond the scope of this board.

What is the strength of the company? It is always hard to predict what shape a company or city will be in 20 years.

These 2 numbers are a bit more fuzzy - you are going to have to use your gut on this.

mattshwink
Posts: 300
Joined: Mon Sep 21, 2015 10:01 am

Re: Strength of Pension Plan

Post by mattshwink » Mon Mar 21, 2016 4:48 pm

JoeM 2018 wrote:How do I research as to how well the pension plan is funded ?
This is where you search for what they have to file to DOL/PBGC in regards to Pension Plan assets/liabilities/health. It can be technical but the data is here.
https://www.efast.dol.gov/portal/app/di ... ution=e1s1

If it is a non-public sector (non-government) pension, then it is insured by PBGC. There are maximums set forth in the law, but your benefits will continue even if your plan fails.
mister_sparkle wrote:I believe your employer should be providing an audited update of plan information, including funding %, once a year.
This is no longer true, I believe the PPA of 2008 changed that, and they now only have to provide the information online (that's what the link above is for, finding the info they submit).

alex_686
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Joined: Mon Feb 09, 2015 2:39 pm

Re: Strength of Pension Plan

Post by alex_686 » Mon Mar 21, 2016 9:26 pm

mattshwink wrote:This is no longer true, I believe the PPA of 2008 changed that, and they now only have to provide the information online (that's what the link above is for, finding the info they submit).
They still need to provide it. It may only be a link in the annual statement they send you but they still have to actively push it out to the beneficiaries.

jimkinny
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Joined: Sun Mar 14, 2010 1:51 pm

Re: Strength of Pension Plan

Post by jimkinny » Tue Mar 22, 2016 8:07 am

PBGC provides a lot of safety but not necessarily a 100% guarantee.

Some religious and maybe charitable institutions can opt out of PBGC. My last employer did this.

Government sources are likely the best.

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