Check if Your Company’s Pension Plan Is Safe

Written by , May 24, 2011

Check if Your Company’s Pension Plan Is SafeOnce upon a time, workers who spent many years employed by one company could count on a nice pension once they retired. The longer they stayed at their jobs, the bigger their pension check would be. But these days, pension plans that guarantee a set amount per month upon retirement (known as defined benefit plans) are becoming quite rare, and the more common benefit is now the 401(k) plan. And many of the pension plans that still exist are on shaky ground.

Pension plans can go south in a couple of ways. Many companies have frozen their pension plans, which means that those who have already earned a pension get to keep it, but their benefits will no longer increase. Companies with pension plans may also go bankrupt, leaving them unable to pay pensions.

If you have a pension, here is some advice to consider before you count on it for retirement income.

  • Pensioners are pretty much guaranteed to receive the pension they have been promised as long as the company doesn’t go bankrupt. In the event of bankruptcy or underfunding, they are covered by the federal government’s Pension Benefit Guaranty Corporation, which will pay pensions for companies up to a certain amount per pensioner per year. Still, you can no longer count on collecting the full pension you would have earned for your entire career with the company.
  • Struggling companies often chuck their pension plans in an effort to cut costs. But even healthy companies have been known to freeze pensions in favor of more affordable 401(k) plans. That means that you can’t always predict whether or not your pension plan will last.
  • Plan administrators are required by law to file certain documents regarding the health of their pension plans. Some are delivered to pension holders automatically, and some are available by written request. The plan’s annual report is the best indicator of its health, as it details the plan’s assets and liabilities.
  • The factors that affect your pension plan’s health include the funding ratio (assets divided by liabilities), the company’s plans to make up shortfalls, and the portion of the assets that are held in stock. Underfunded plans that are vulnerable to falling stock prices are the most likely to fail.
  • If you see that your company’s pension plan is in trouble, it’s important to take action. Start contributing to a 401(k) or IRA, and if you’re eligible for a lump sum distribution, consider taking it.
  • A pension can make your retirement much more comfortable. But the unfortunate truth is that they can’t necessarily be counted on any more. Keeping a close eye on your pension and making sure you have some other form of income to see you through will help ensure that you’re able to make it through retirement.

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    One Response to “Check if Your Company’s Pension Plan Is Safe”

    1. […] the ability to feel comfortable and confident in choosing to receive monthly payments from your pension depends on how well funded your pension is. This means not just the solvency of the pension itself, […]

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