Author Topic: How safe are pensions?  (Read 2155 times)

NewPerspective

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How safe are pensions?
« on: May 22, 2018, 09:11:48 AM »
In general, how safe do you think pensions are?

My husband works for a large oil field services company.  He is one of the last ones to have a pension with this company.  (He has been with them for about 17 years, they stopped offering pensions to new employees about 15 years ago).  If all goes as planned and he retires at the age of 57 (he is 46 now) he will receive several thousand dollars a month for the rest of his life.  It is a substantial amount of money that would greatly impact our future finances and planning.  The problem is, we don't know if we can or should rely on it.  Up until this point, we have basically acted like we won't have it, however, as we are getting closer to wanting to retire, it would be good to know if we can reasonably assume it will be there.

I'm having a hard time finding information about non-government pensions.   I think pensions are covered even if a company goes bankrupt, but I'm not entirely sure.

Does anyone have any information or insight?



radram

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Re: How safe are pensions?
« Reply #1 on: May 22, 2018, 10:50:27 AM »
There is really no such thing as  "are pensions safe".

Every pension plan will stand or fail on their own. You need to research your specific plan to see how well funded and insured it is.

For example, the UNFUNDED portion of the state of Illinois pension is larger than the ENTIRE, FULLY funded state of Wisconsin plan. At the state level, WI is the only fully funded state pension plan in the country. It took a lawsuit to replace the money taken from the fund by then governor Tommy Thompson, with interest, to remain fully funded.

This is my pension plan, and I plan for it with relative confidence. If I was in Illinois, I would probably discount it at least the percentage of being unfunded, plus an added amount to estimate it getting even worse before I would actually lock in.

Incidentally, I use the same idea for planning for Social Security.

Here are some directions for how to tell how your plan is doing:
http://www.pensionrights.org/publications/fact-sheet/how-well-funded-your-pension-plan

You could also just search for articles already written about your plan. Your HR department could also provide you with more information.

We are here to learn. Please report back, and share the name of your plan if you comfortable doing so.

TheWifeHalf

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Re: How safe are pensions?
« Reply #2 on: May 22, 2018, 10:51:23 AM »
I can only share what TheHusbandHalf told me:
Every year the company, an international oil company, has to report to the government about their pension. They have to have a certain percent, and he said they have always had more.
If a company has less, the amount they pay in lump sums, or other methods they have, is less.

He said the pension is handled by Fidelity, so the chance of someone getting in and taking it, fraudulently, is close to 'low.' To see the amount in the pension is pretty easy for us. He has an account, with a button he clicks that goes to 'pension.'  There must be a dozen different ways he can choose, for the way it is paid. All we do is fill in the dates and the percents, and it shows the amount paid and when.

He really watches things like this, but I do not know where he gets the info about the government requirements being met.

His pension is something he doesn't contribute to, like he does his 401k.

A few months ago my cousin's pension check was cut by a third, but I think it was at least partly through his union. He's in his late 60's.

If we put in retire Jan '19, the lump sum is 470,000. He said he's been working there 26 years and only 2 people have not taken the lump sum.
Monthly, the payments stopping when he dies, is now about 2900/month. With 100% still coming to me, it's 2399/month.
« Last Edit: May 22, 2018, 10:59:03 AM by TheWifeHalf »

BrightFIRE

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Re: How safe are pensions?
« Reply #3 on: May 22, 2018, 02:20:46 PM »
In general, how safe do you think pensions are?

My husband works for a large oil field services company.  He is one of the last ones to have a pension with this company.  (He has been with them for about 17 years, they stopped offering pensions to new employees about 15 years ago).  If all goes as planned and he retires at the age of 57 (he is 46 now) he will receive several thousand dollars a month for the rest of his life.  It is a substantial amount of money that would greatly impact our future finances and planning.  The problem is, we don't know if we can or should rely on it.  Up until this point, we have basically acted like we won't have it, however, as we are getting closer to wanting to retire, it would be good to know if we can reasonably assume it will be there.

I'm having a hard time finding information about non-government pensions.   I think pensions are covered even if a company goes bankrupt, but I'm not entirely sure.

Does anyone have any information or insight?

I was just looking into this a few weeks ago for myself. I have a nonprofit, non-government pension and I wasn't sure how realistic it was to assume they'd still be around when it's time to start paying my pension. You want to read up on the Pension Benefit Guaranty Corporation https://www.pbgc.gov/ - they continue to pay your pension if the company goes under.

NewPerspective

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Re: How safe are pensions?
« Reply #4 on: May 22, 2018, 05:27:10 PM »
Thank you guys!

@radram I took your advice and just did some online searching.  Since this isn't a governmental organization I didn't realize this information would be public.    A 2018 article said the pension plan is 88.3% funded. 

And I learned the difference between my husband retiring at age 50 vs age 57 is about 50k a year!  That makes it really hard to walk away early.

MDM

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Re: How safe are pensions?
« Reply #5 on: May 22, 2018, 06:19:09 PM »
And I learned the difference between my husband retiring at age 50 vs age 57 is about 50k a year!  That makes it really hard to walk away early.
Is there also a difference between retiring at age 50 and
a) starting the pension at age 50, vs.
b) delaying the start of the pension (to age 57 or whatever age)?

radram

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Re: How safe are pensions?
« Reply #6 on: May 23, 2018, 06:24:57 AM »
Thank you guys!

@radram I took your advice and just did some online searching.  Since this isn't a governmental organization I didn't realize this information would be public.    A 2018 article said the pension plan is 88.3% funded. 

And I learned the difference between my husband retiring at age 50 vs age 57 is about 50k a year!  That makes it really hard to walk away early.

Here is another site with some good information:
https://www.consumerreports.org/cro/magazine/2012/07/how-safe-is-your-pension/index.htm

They say if your pension has 80% of liabilities covered with assets it is a good sign.

radram

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Re: How safe are pensions?
« Reply #7 on: May 23, 2018, 06:32:33 AM »
And I learned the difference between my husband retiring at age 50 vs age 57 is about 50k a year!  That makes it really hard to walk away early.
Is there also a difference between retiring at age 50 and
a) starting the pension at age 50, vs.
b) delaying the start of the pension (to age 57 or whatever age)?

These are excellent points. It should make a huge difference to delay benefits. Many of us FIRE folks would use that gap between ending work and starting pension benefits to convert an IRA to a ROTH.

radram

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Re: How safe are pensions?
« Reply #8 on: May 23, 2018, 06:36:30 AM »
In general, how safe do you think pensions are?

My husband works for a large oil field services company.  He is one of the last ones to have a pension with this company.  (He has been with them for about 17 years, they stopped offering pensions to new employees about 15 years ago).  If all goes as planned and he retires at the age of 57 (he is 46 now) he will receive several thousand dollars a month for the rest of his life.  It is a substantial amount of money that would greatly impact our future finances and planning.  The problem is, we don't know if we can or should rely on it.  Up until this point, we have basically acted like we won't have it, however, as we are getting closer to wanting to retire, it would be good to know if we can reasonably assume it will be there.

I'm having a hard time finding information about non-government pensions.   I think pensions are covered even if a company goes bankrupt, but I'm not entirely sure.

Does anyone have any information or insight?

I was just looking into this a few weeks ago for myself. I have a nonprofit, non-government pension and I wasn't sure how realistic it was to assume they'd still be around when it's time to start paying my pension. You want to read up on the Pension Benefit Guaranty Corporation https://www.pbgc.gov/ - they continue to pay your pension if the company goes under.

That is if PBGC is the insurer. They do not have to be, they are simply the largest insurer. It is also interesting to note that PBGC itself is underfunded by $26 billion.

NewPerspective

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Re: How safe are pensions?
« Reply #9 on: May 23, 2018, 07:12:38 AM »
And I learned the difference between my husband retiring at age 50 vs age 57 is about 50k a year!  That makes it really hard to walk away early.
Is there also a difference between retiring at age 50 and
a) starting the pension at age 50, vs.
b) delaying the start of the pension (to age 57 or whatever age)?

These are excellent points. It should make a huge difference to delay benefits. Many of us FIRE folks would use that gap between ending work and starting pension benefits to convert an IRA to a ROTH.

Thanks for this!  I'm asking my husband to find out. 

I found a form 5500 from 2008  that showed the assets were greater than the liabilities but I not seeing a more recent form.  Also the international pensions are around 97% funded.  Not sure if that is significant or not.  From the article....

"As of Dec. 31,2017 the company's U.S. defined benefit assets and projected benefit obligations totaled $4.06 billion and $4.6 billion, respectively, for a funded status of 88.3%.

Also as of Dec. 31, the oilfield services company's international DB assets and projected benefit obligations totaled $8.51 billion and $8.75 billion, respectively, for a funded status of 97.3%.

The discount rates used to measure pension obligations for the U.S. and international plans were 3.7% and 3.55%, respectively, down from 4.2% and 4.13% in 2016.

At the end of 2017, the U.S. plans had an asset allocation of 51% equities, 38% debt, 8% alternatives and 3% cash."

Bateaux

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Re: How safe are pensions?
« Reply #10 on: May 24, 2018, 02:57:11 AM »
I worked for my current employer for 20 years when they froze our pension.   There is no guarantee at all they won't be able to make severe changes without your consent.   They legally bought all those years for pennies on the dollar.  My expected retirement age went from 52 to 62!  Ten more years working and it still would fall short of the original plan.  Thankfully we saved a lot and never trusted a corporation with our future.

Hvillian

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Re: How safe are pensions?
« Reply #11 on: May 24, 2018, 03:53:16 PM »
The company's plans are pretty well funded, and the plan sponsor (his employer) seems to be in pretty good financial shape in an industry unlikely to disappear quickly.  The pension plan's needed contributions don't seem to represent a huge amount of money compared to the company's revenues (also good).  I think you can be very confident that he will receive his benefits.  If the companies financial situation deteriorates for some reason, he would still be covered up the the PBGC limit for the age he plans to retire.  If his benefits are significantly above what the PBGC covers (or if he plans to take the money early, since that would reduce his PBGC coverage limit), I would reduce my reliance on the money a little bit.

I am not sure why the company website only has the Form 5500 posted through 2008.  You can look up more recent ones on the DOL website at the link below.  Just put the plan's EIN number (without the dash) and Plan Number (from boxes 2b and 1b on the old 5500) in the search boxes, and you should find all of the plan's 5500 filings.  The Schedule SB has the details on the plan's funding status.  It can be a bit technical to look through, so feel free to ask any questions.
https://www.efast.dol.gov/portal/app/disseminatePublic

Also, be sure to read his pension plan's summary plan document (SPD).  It will lay out when he can retire (age and/or service requirements), any reductions for early retirement, etc.  From that you can usually formulate the best strategy for your retirement plans.

Also note that I would never apply the same confidence to any Retiree Medical benefits that he may be eligible for because they are not covered by the same funding requirements as the pension plan, and are easier to reduce if the company wants to.

NewPerspective

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Re: How safe are pensions?
« Reply #12 on: May 25, 2018, 08:51:47 AM »
The company's plans are pretty well funded, and the plan sponsor (his employer) seems to be in pretty good financial shape in an industry unlikely to disappear quickly.  The pension plan's needed contributions don't seem to represent a huge amount of money compared to the company's revenues (also good).  I think you can be very confident that he will receive his benefits.  If the companies financial situation deteriorates for some reason, he would still be covered up the the PBGC limit for the age he plans to retire.  If his benefits are significantly above what the PBGC covers (or if he plans to take the money early, since that would reduce his PBGC coverage limit), I would reduce my reliance on the money a little bit.

I am not sure why the company website only has the Form 5500 posted through 2008.  You can look up more recent ones on the DOL website at the link below.  Just put the plan's EIN number (without the dash) and Plan Number (from boxes 2b and 1b on the old 5500) in the search boxes, and you should find all of the plan's 5500 filings.  The Schedule SB has the details on the plan's funding status.  It can be a bit technical to look through, so feel free to ask any questions.
https://www.efast.dol.gov/portal/app/disseminatePublic

Also, be sure to read his pension plan's summary plan document (SPD).  It will lay out when he can retire (age and/or service requirements), any reductions for early retirement, etc.  From that you can usually formulate the best strategy for your retirement plans.

Also note that I would never apply the same confidence to any Retiree Medical benefits that he may be eligible for because they are not covered by the same funding requirements as the pension plan, and are easier to reduce if the company wants to.

Thank you!!!!!  This is so helpful.  I found the most recent 5500 (2016).     I think I'm supposed to take line 2a and subtract line D to understand how well funded the plan is.  Is that correct?  If so, then it looks to be to be in good shape?

I'm attaching an image here - hopefully it works!!

Hvillian

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Re: How safe are pensions?
« Reply #13 on: May 25, 2018, 09:21:16 AM »
Yes, it looks like a well funded plan.  I would check the 5500 or Annual Funding Notice (that you should receive each year) every year or two to make sure it stays that way, but would not worry too much.

Also, somewhere in the filing should have a summary of the Plan Provisions (usually attached towards the end).  If you can't find the SPD, you can get a good idea of the age and service requirements for Retirement, and any reductions for Early Retirement.  Age 46 now with 17 years of service means that by age 57 (with 28 years of service) he may qualify for a subsidized or unreduced early retirement if that is in the plan's provisions.  But those benefits can differ widely (or not exist at all), so check his plan.

NewPerspective

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Re: How safe are pensions?
« Reply #14 on: May 25, 2018, 09:34:33 AM »
I worked for my current employer for 20 years when they froze our pension.   There is no guarantee at all they won't be able to make severe changes without your consent.   They legally bought all those years for pennies on the dollar.  My expected retirement age went from 52 to 62!  Ten more years working and it still would fall short of the original plan.  Thankfully we saved a lot and never trusted a corporation with our future.

What does it mean when your pension is frozen?  Was this because the pension wasn't well funded?

justchristine

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Re: How safe are pensions?
« Reply #15 on: May 25, 2018, 12:45:43 PM »
I worked for my current employer for 20 years when they froze our pension.   There is no guarantee at all they won't be able to make severe changes without your consent.   They legally bought all those years for pennies on the dollar.  My expected retirement age went from 52 to 62!  Ten more years working and it still would fall short of the original plan.  Thankfully we saved a lot and never trusted a corporation with our future.

What does it mean when your pension is frozen?  Was this because the pension wasn't well funded?

Freezing a pension is the first step in a long process for a company to terminate the plan.  Whatever your vested amount is at the point where the plan is frozen is the most you will ever get.  The company doesn't add to your benefit amount beyond that date.  Eventually they terminate the plan and you can have your vested amount rolled over into an IRA or buy an annuity.