How’s Your Pension Doing?

A favorite question to ask a Democrat in Iowa right now is: “What candidate are you supporting in the 2020 Iowa Caucuses?” 

I don’t have an answer, yet.  I don’t watch debates.  Debates, which is a misnomer today, have turned into ratings wars for the media, where the candidates yell at each other and never get to the meat of an issue.  How could anyone, with fewer than 3 minutes explain a complex subject.  It was much better when the League of Women Voters facilitated the events.  The candidates and the questions were civil.

So, I read newspapers, talk to a few followers of certain candidates, and attend an event where a candidate is speaking – rarely.  Candidates will tell us what they will do, won’t do, or think they can do.  Do any of them listen?  Sure, just ask them.  Each will tell you what they have heard from Americans.

As far as I know, none of them have listened to me.

I’m a Baby Boomer. I live on my Social Security “entitlement” benefits, and two pensions – one is very tiny, the other is moderate, it’s about half of what Social Security provides, but I couldn’t live without it.  Yes, Social Security benefits are very important.  Just ask any politician.  Some will tell you the Social Security well is going to run dry in about 20 to 30 years. Some will tell you it’s solvent far beyond that estimate.  This issue is an ongoing debatable issue.  I may not be around when something changes (like having Congress pay back what it borrowed – HA!).  But my pensions are the focus of my questions to candidates.

Not many Americans are lucky enough to have a “defined benefit” pension. 

Defined benefit plans provide a fixed, pre-established benefit for employees at retirement. Employees often value the fixed benefit provided by this type of plan. On the employer side, businesses can generally contribute (and therefore deduct) more each year than in defined contribution plans. However, defined benefit plans are often more complex and, thus, more costly to establish and maintain than other types of plans.

https://www.irs.gov/retirement-plans/choosing-a-retirement-plan-defined-benefit-plan

I have never contributed to a defined benefit plan in which I have participated.  With most defined benefit plans, the employer makes the contribution.  It is possible that an employee may contribute, but that’s not the norm.

Defined benefit plans are the costliest plans for a business, non-profit or other entity to maintain.  About 20-30 years ago, many companies were keeping their defined benefit plans, but began placing new employees on a 401k plan.  Those employees with a defined benefit plan were grandfathered in, while those hired after a certain date were offered the alternative 401k.  A 401k plan, described as a defined contribution plan, is less costly for an employer, more costly for the employee, but as any company human resources department will tell you, gives the employee more control over investments, etc.  Usually, an employer will match an employee’s contribution into the plan, often up to a maximum 7% of the weekly/monthly salary.  “In 1975, 62 percent of private-sector workers participated solely in a defined-benefit plan; in 2009, only 7 percent did, according to the Employee Benefit Research Institute.” 

My question to presidential candidates, U.S. Senatorial candidates, and Congressional candidates is this:  ‘Once elected, other than relying on ERISA (Employment Retirement Income Security Act) or the Pension Benefit Guaranty Corporation (PBGC) what is and should be your ideas to keep private pension plans and the PBGC solvent?’  (ERISA and PGBC do not cover most government-run pension plans).

Economists are projecting a recession for the near future[1].  When companies cannot sell their products, when non-profits cannot solicit necessary funding, and when service vendors cannot meet sales goals, layoffs occur.  But one thing former employees never worry about is the pension check coming in every month.  A financial hit on a business or non-profit with a defined pension program may affect the pension plan’s solvency, while you hear only about the layoffs.

You can lose your pension benefits overnight.  Several companies have filed for bankruptcy in the past year, including Sears, Toys R Us, ShopCo, and Payless.  Granted, it’s not likely these companies had defined benefit plans for their employees, but if they did, the employees are probably not going to see any financial recovery.  Not that many years ago, Dahl’s Food Stores in the Des Moines Metro area experienced a bankruptcy in which all employees lost their so-called “guaranteed” pensions.  It affects more than employees; it affects the community, as well.

In 1998, CIGNA Corp. changed its defined benefit plan to a cash balance plan.  The employees and the plan administrator sued.  The U.S. Supreme Court, in CIGNA v. Amara, remanded the case back to “District Court to revisit its determination of an appropriate remedy for the violations of ERISA it identified.  . . .  Because the District Court has not determined if an appropriate remedy may be imposed under § 502(a)(3), we must vacate the judgment below and remand this case for further proceedings consistent with this opinion.”  This case was ongoing in 2014, 16 years after the initial change in the CIGNA pension plan.  The complexity of the case, and the numerous side issues that had to be settled, created costs to the litigants that could not be retrieved.  The end result was not a total win for the employees.  The cash balance plan was an actuarial distortion that gave former employees a cash settlement, far less than what they would have received in monthly payments over the years.  It’s sad that the courts determined that there needed to be “an appropriate remedy” for a situation that was not caused by employees, but by the multinational corporation.

If you depend upon a defined pension plan, you should read this:  https://www.marketwatch.com/story/10-things-pension-plans-wont-tell-you-1315521082086 Especially if you have a government-funded pension.

Some unscrupulous companies have been known to raid the employee pension plan to offset a huge salary for corporate management at the highest levels.  This usually comes before the company files for bankruptcy, merges with another unscrupulous company, or closes down without notice.  ERISA is intended to provide oversight to pension plans.  By the time a company or nonprofit has closed, merged, or filed bankruptcy, ERISA can no longer be of much use.  It is the PBGC that helps employees when a company’s pension plan fails. 

Unfortunately, the PBGC is not funded by tax dollars.  The funding for this program comes from “insurance premiums, investment income, and, for the Single-Employer Program, assets and recoveries from failed single-employer plans.”  It is estimated that the PBGC’s “Multiemployer Insurance Program continues on the path to running out of money by the end of fiscal year 2025.”  The Multiemployer Insurance Program covers those pension programs in which more than one employer joins with others to sponsor a plan covered by collective bargaining agreements.

Single-Employer Programs are doing a little better.  These programs are sponsored and maintained by one employer.  However, the “Single-Employer Program remains exposed to a considerable amount of underfunding in plans sponsored by financially weak employers. Plans whose sponsors’ credit quality is below investment grade have unfunded liabilities of approximately $175 billion.”

All of this news is scary for pension plan participants. If your plan fails, you may receive some relief from the PBGC, but it may be pennies on the dollar.  For example, if you currently receive a monthly pension of $1200, and your company’s pension plan fails, you may receive a continuing pension check of $500 a month.  If nothing happens in the next few years, there may be no money left in the funds to pay you a penny on the dollar.

Ask all the questions you want about teachers’ pay, minimum wage, and equality in the workplace, but don’t let the candidates sway you into believing those are the only workplace issues.  Baby Boomer or not, if you depend upon a pension, you should get to know a little more about it.  Learn about high actuarial assumptions, signs that a plan may be underfunded.  Even an overfunded plan can lead to dangerous raiding by corporate sponsors.

Think of the potential economic catastrophe if you and your neighbors worked for the same employer for years, retired, and suddenly lose most of your benefits.

If you don’t have a pension, you still have a lot to consider.  Your friends, neighbors, and relatives may be adversely affected if this country enters a period of recession and companies fail.  Because of Internet shopping, a loss of local small businesses, and the effect of tariffs, we all have something to think about besides the current situation of those less fortunate.  We may be one of them.

Be ready to ask the tough question: 

“Once elected, other than relying on ERISA (Employment Retirement Income Security Act) or the Pension Benefit Guaranty Corporation (PBGC) what are your ideas to keep private pension plans and the PBGC solvent to ensure retirees, neighborhoods, and whole communities are not placed in an economic tailspin?”


[1] https://www.guggenheiminvestments.com/perspectives/macroeconomic-research/forecasting-the-next-recession;

https://thehill.com/policy/finance/431423-three-fourths-of-economists-predict-recession-by-2021-survey;

https://fortune.com/2019/06/04/next-recession-2020-predictions/;

https://www.bloomberg.com/news/articles/2019-08-08/u-s-recession-odds-pick-up-as-economists-cut-growth-estimates

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