Pension security question

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macman_65
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Joined: Fri Jun 16, 2017 8:27 am

Pension security question

Post by macman_65 » Tue Sep 25, 2018 2:05 pm

The company that I work for is on shaky ground and I am trying to gauge the security of my pension.

Currently, the funding target attainment percentage is 95.65% with adjusted interest rates and 81.65% without.

If the company were to go bankrupt within the next few years would those percentages indicate that the pension payout amount should be reasonably safe.

I am having trouble getting specific answers from the people that I have spoken with.

yohac
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Re: Pension security question

Post by yohac » Tue Sep 25, 2018 2:18 pm

If bankruptcy is on the horizon, the question you really need to ask is whether the plan is covered by PBGC. If not, that's bad. If so, is it in the single or multiemployer plan? The latter is projected to be insolvent by 2025.

MnD
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Re: Pension security question

Post by MnD » Tue Sep 25, 2018 2:24 pm

You also need to check if your specific benefit level for your planned retirement age is within the PBGC limits.
Many airline pilots (typically early retirement age with high pension benefits) learned after 2008/09 that PBGC limits covered only a small fraction of their promised benefits from the airlines.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.

alex_686
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Re: Pension security question

Post by alex_686 » Tue Sep 25, 2018 2:27 pm

macman_65 wrote:
Tue Sep 25, 2018 2:05 pm
Currently, the funding target attainment percentage is 95.65% with adjusted interest rates and 81.65% without.
These are pretty decent numbers for a pension plan. For a company that is on shaky ground this kinds of surprises me. Usually the pension obligations are deeply underfunded, even for solid companies.

2 points.

First, double check their numbers. They should have expected returns in their plans. You can inflate the numbers by using overly optimistic numbers. Hopefully expected returns are in the low single digits. The abuse in this area has decreased but it is worth double checking.

Second, pension assets are segregated in their own account. If the company declares bankruptcy they can't touch the pension assets. However, any unfunded portion just becomes another unsecured debt in bankruptcy. So maybe 20 cents on the dollar?
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.

Topic Author
macman_65
Posts: 51
Joined: Fri Jun 16, 2017 8:27 am

Re: Pension security question

Post by macman_65 » Tue Sep 25, 2018 2:32 pm

yohac wrote:
Tue Sep 25, 2018 2:18 pm
If bankruptcy is on the horizon, the question you really need to ask is whether the plan is covered by PBGC. If not, that's bad. If so, is it in the single or multiemployer plan? The latter is projected to be insolvent by 2025.
It is a single employer plan and it is covered by PBGC. I would say bankruptcy is a very real possibility. One article I read recently (last week) estimated that the company would be gone in 5 years.

Stonebr
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Re: Pension security question

Post by Stonebr » Tue Sep 25, 2018 3:57 pm

macman_65 wrote:
Tue Sep 25, 2018 2:32 pm
It is a single employer plan and it is covered by PBGC. I would say bankruptcy is a very real possibility. One article I read recently (last week) estimated that the company would be gone in 5 years.
I think you can relax as far as the plan itself. What happens is all the plan's assets and liabilities get sucked into the PBGC trust fund. The last I heard, the PBGC assets were all in a gigantic indexed balanced fund on the asset side. They then take over all the benefit payments, and this is done seamlessly so that plan participants never miss a payment.

If you are not yet retired, you would go directly to the PBGC when you reach retirement age and claim your benefit from them. If your company does go bankrupt and all this comes about, you will get notification from the PBGC. Keep it.

The PBGC has limits, however, as someone mentioned above. It's a bit like the FDIC limits except they are adjusted for inflation and other factors. Latest release I could find...

https://www.pbgc.gov/news/press/releases/pr17-08
"have more than thou showest, | speak less than thou knowest" -- The Fool in King Lear

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