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How to protect your pension

Despite the current tough economy, most pension benefits are not at risk -- but it's always a good idea to check the health of your plan.

By MSN Money Partner Nov 10, 2011 7:12PM

This post comes from Phil Moeller at partner site U.S. News & World Report.

 

Reports of the death of the traditional pension, as with concerns about Social Security, have been greatly exaggerated, to borrow Mark Twain's famous phrase.

 

There is no question that defined benefit plans are disappearing from the workplace. And pensions, particularly public pensions, are under pressure. Employers are scrambling to adequately fund their plans and are also watching plan returns slide after finally regaining much of the losses they experienced during the 2007-2008 market swoon.

 

But pension benefits are generally not at risk, experts stress, particularly for existing employees who already have vested benefits from their plans. More likely, newer employees will receive less generous benefits and may have to contribute more to their plans to secure benefits than existing employees.

 

"Don't panic just because there's generally bad news about the economy or Wall Street," advises Rebecca Davis with the Pension Rights Center, a pro-employee consumer group. "It doesn't mean your plan is in trouble."

 

Check the plan's funded status

"The one big data point that everyone likes to look at is the funded status of the plan," says Ilana Boivie, program director at the National Institute on Retirement Security, which focuses on public employee pension plans. The funded status, she explains, is the ratio of assets that a plan has on hand to meet its future pension obligations. This assumes those assets actually earn the future investment returns assumed by plan administrators. These assumptions have drawn more scrutiny in the wake of steep market losses in recent years.

 

"A funded ratio of 80% or higher means that the plan is healthy," Boivie says. Because of the long time horizon of plan investments and retiree payouts, any gap between 80% and 100% is considered manageable, she explains, although higher-funded ratios are desirable.

 

Get an annual statement

Current and retired pension plan participants can get annual reports about the financial conditions of their plans. In the case of private plans, the annual funding notice is legally required, Davis says.

 

Participants also can request a more detailed annual report from their plan, she says. It goes into greater detail about financial conditions of the plan, and may require the help of a financial adviser to evaluate.

 

Davis also advises active employees to get a statement from their plan showing the vested retirement benefits they are entitled to receive when they retire. Once a benefit is vested, she notes, the plan is legally obligated to pay it. "What I think no one would argue is that any benefits you've accrued to date will not be taken away from you," Boivie says. "You will get your vested benefits in retirement." Post continues below.

Even employees in troubled private plans with low funding ratios should have some comfort that they will see those vested benefits when they retire, Davis adds. In the case of private plans, the federal Pension Benefit Guaranty Corp. (PBGC) insures pension benefits, and its maximum benefit payouts are more than $50,000 -- well above the typical pension due to retirees.

 

Lock in monthly payments

Employees worried about the long-term solvency of their plan are often tempted to take their pensions as lump-sum payments instead of lifetime monthly payments, figuring it's better to get the money now than worry about it being there in the future. Most experts say it's much better for retirement security to lock into lifetime monthly payments. For private plans insured by the PBGC, taking lump-sum payments shouldn't be necessary for most employees to receive their vested benefits.

 

Evaluate the health of your plan

Public employee pension plans do not have insurance, and Boivie says it's much more important to drill down into the details of each plan to evaluate its health. "These plans, because they are public entities, pretty much operate in a fishbowl" and provide lots of information to participants and taxpayers, she says. Larger public plans are part of the Public Funds Survey, which tracks the performance of plans providing pensions to more than 80% of all public employees. (User registration is required to access the Survey's reports.)

 

"Just about every state and local plan publishes a comprehensive annual financial report," she says. Boivie recommends that public pension-plan members look at their employer's plan contributions over time. Every year, plan actuaries have to develop a set of plan assumptions for contributions, investment earnings, and plan expenses. These assumptions are the basis for the plan's annual required contributions, Boivie explains, and the annual financial report will show the percentage of the annual required contribution made by the plan.

 

Consider all of your options

While there have been concerns about government funding shortfalls, the biggest concerns about public pensions have been over program cutbacks to new employees, and the meagerness of payouts for short-time public employees who don't accrue large vested benefits. For those employees, Boivie suggests, it may make sense to put more money into individual retirement accounts and public defined contribution plans, such as 403(b) programs.

 

More on U.S. News and MSN Money:

12Comments
Nov 10, 2011 10:48PM
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I am kind of at a loss here. Legally my company (Toshiba America) on there own without employee approval converted our companys retirement from a 2% X # number years worked calculation to a "cash value" plan. I worked for Toshiba for 18 years when they did this and I was in my early-mid 50's. They held meetings telling us that this change would not harm us but did not give us any examples. A long story short is that I was paid $160k when I retired when I would have a payment of $5K per month ($60k per year) under the original plan. The promise is hollow when the corp's can change it anytime they want and put extra cash in there pocket. It totally sucks! Maybe they expected me to die in 3 years. I sure didn't.
Nov 10, 2011 9:23PM
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How about protecting the pensions of our VETERANS, which are being threatened by legislators trying to alter them into vulnerable, questionable-output 401k's.

 

The difference between a 401k and the regular military pension at 20 years?

 

$400,000.  Thats how much LESS your dedicated, life-long military men and women will receive if you let them change the thus far guaranteed pensions into market-fluxuating 401ks.

 

Not  only that, they won't start paying out upon retirement from the military like pensions do, but when the service person reaches age 63.  NOTHING for over 20 years, for 20 years dedicated service.

 

Don't make me give you the difference for a 30 year military career.

 

And now imagine those service personnels 401k's coming to term at age 63, twenty years after the fact... in the middle of the next recession, where they receive a FRACTION of their expected payout, just like our seniors had happen 4 years ago.

 

Protect your pension indeed... unless the legislators VOTE THEM AWAY.  No protection against that.

Nov 11, 2011 9:23AM
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Lets start cutting at the top and Take away the pensions of the politicians and force them to live on Social Security. I wonder how fast things would be fixed.  I agree the biggest problem facing us is Medical insurance costs. It is a huge expense for me at $700.00 per month for a family plan.-- I pay a $60 co-pay and still get a bill in the mail. ---- My younger brother cost $250 cash to be delivered in 1972 at a hospital. Those were the days.
Nov 11, 2011 8:11AM
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The big retirement /pension protection question will be MEDICAL. The republicans have got most conned into believing we must at least cut  or hopefully eliminate medicare, in order to save the countries' future.  There's no sense debating the validity of those claims, you believe what you believe period.  The fact is if they pull it off, everybody will be looking at skyrocketing private insurance/ medicare supplemental rates. If medicare is eliminated all private insurance rates will be unaffordable for 99% of the population over 70 years of age. My personal Blue cross of Arizona rate chart only goes to age 65 (  no rate for age 70 could  be quoted). For  2011/2012, the rates without medicare  at age 65 are $2400 a month for a male and  over $2000 a month for a female . Those   rates are for one year only  and are adjusted each October.  Of couse that amont does not include deductables or  copays which you don't have with medicare  and no pre-existing  conditions  are accepted .  As medicare benefits are cut or eliminated your monthly premiums will soar. A $6000 dollar  medical premium  voucher won't keep you out of the poor house( that is if there is funding for a poor house). Anyone currently on medicare, or over the age of 55 who believes the claim they will not be affected by medicare elimination or cuts are only fooling themselves. They'll be the first ones to take the hit.
Nov 11, 2011 11:13AM
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I am also sick and tired of the news media making government employee pensions the scape goat for politicians tapping those retirement accounts over the years, and now call people who have earned those reirements greedy pigs! The greedy pigs are the Politicians in Washington DC, SWINE is what they are.  They have huge retirements, the best medical benefits money can buy and they have the stones to call us greedy?  REALLY?  For the record gov employees are historically paid less than the private sector, we pay into our retirements not like the Washington Politicians who pay nothing into theirs.  Our government hakes me sick with the corruption and kick backs, stealing from the citizens of this nation. PIGS is what they are. Now they're reducing the benefits of our troops, by charging more for their dependents medical care !  The Congress needs to cut their obscene salaries and retirement first, then come talk to us  "We the People"!
Nov 11, 2011 11:03AM
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 I dedicated the last 25 years to a school district and  im sort of sick of hearing about how the tax payer is the only one that  pays  for school employee pensions..First of all , school employees  contribute to their own pension plans from each pay check, and its a considerable amount , and in my school district, i also  pay to social security.  In my opinion they have earned every single penny of it..It wasnt given to them..And for years and years  we worked for low wages while the private sector was doing good..But what  kept most teachers working besides their dedication to the kids ALL THOSE YEARS, was their dream of  being able to retire some day with a steady pension and decent health care..It never crossed our minds that the  economy would tank and the public wouldnt keep their commitments and promises to the many teachers  and employees who had  dedicated their lives in the service of their children. I understand that our country is in a financial crisis  but  you should always keep your commitments.,..especially to your retires....    ... Seniors have earned it and have paid into  it and its too late for  most seniors to go back to work because of their age and health .They have dedicated their lives to their country    in work and in the service in some cases. and if thay have pensions or social security..the public sector should  move mountains  to honor thosae commitments to  their  loved seniors.....FOR ITS AMERICAS DUTY..

Nov 11, 2011 8:39AM
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Folks, you can't protect your home, car or children, just to mention a few, SO how the heck would you buy into "How to Protect Your Pension?"  Our investments are vanishing and there isn't a darn thing we can do about it. 

Nov 11, 2011 12:17PM
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If there is one thing in the world I don't mind paying taxes for it is for the pension of a hard working American and especially a Veteran. Couple years ago we were working 13& 1/2 hour days 7 days a week, I looked hopefully at my first pay stub and guess what? My net pay was only $300 more than my deductions, my first thought is the SOB's on welfare. Why aren't you people gripin about them instead of people who actually work.

 

I am sick and frickin tired of seeing the American working class point fingers and tear itself apart. I'm talkin to SPODEODE, THOMAS etc. Tearing down another man's wages doesn't help you a bit it just drags everybody down. Wake up people. Back when organized labor was strong company pensions were. If you're tired of your 401k crap fight for a real pension. When they freeze your pension, freeze production. People in this country need their spines back, we used to be a great nation. So many men fought so hard for the conditions we take for granted, and now we're givin it all back.

 

Here in Southeast Missouri in the Lead mining capital of the world, they tried to vote the Union back in, the company said "we don't need unions, we'll take care of ya". So they voted it down and 6 months later the company cut the pension and now all they got is a 401K (at this same time the price of lead hit all time highs).They company was rakin in the $, but it wasn't enough they had to cut the throat of a man who works 1,500 feet underground. They were not cutting for global competion, they cut for GREED.

Nov 11, 2011 11:32AM
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How is it fair that my own Private Sector 401K retirement only pays me what I put into it plus earnings, and when that is gone it is gone, and yet I am expected to pay for the inflated pension systems setup for public workers.  And NO, public workers do not pay into their pension systems as much as they receive.  The Taxpayer is on the hook for funding the Pension System for Public Workers regardless of if they benefit.

 

Here is an earlier MSN article that highlights the real problem with the Pension system for Public Workers: No Pension?  You may still owe $30K on one  see

http://money.msn.com/retirement-investment/article.aspx?post=4983a5f8-bc82-4d24-8aaf-43893d580bee&_p=64d4145a-31bd-48bc-8890-5f013ac0a399&_nwpt=1

Nov 11, 2011 11:13AM
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GTR-RMN

 Check the difference in rates with your  insurance company between the ages of 64 and 65. At 65 all plan premiums at the very least double, many triple. Insurance companies set rates  based on pay out risk, its a fact the older you get, the more likely you'll cost them money. Your great granparents learned this the hard way, until medicare they just died ( unless family could help, as medical was far less expensive in those days).

Nov 11, 2011 9:24AM
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Another author who is out of touch with reality.  I am a private sector employee - my employer "froze" their plan 3 years ago.  What exactly does that mean to me....only 30% of the benefit that they originally promised.  As for the public employees, wake up....the taxpayers are the ones that pay your pensions, and as the private sector is shedding plans to remain globally competitive, so too will the public employees as the benefits promised far exceed what the taxpayer is willing to pay.
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