Ominous words on pensions

New York Times on the spending bill passed yesterday:

The legislation provides $64 billion for military campaigns in Afghanistan, Iraq, Syria and other countries. It allows certain multi-employer pension plans to shore up their finances by cutting retirees’ benefits. And it reduces the budget for the Environmental Protection Agency, the Internal Revenue Service and other agencies out of favor with Republicans. But Democrats staved off deep cuts to many of their favorite health and education programs.

That’s bad news for some retirees and soon to be retirees. These Union plans are jointly managed by unions and employers. Employers contribute an amount per hour worked and the union member can move from one participating employer to another and keep their pension. The problem is these plans are underfunded and if an employer drops out, the remaining employers are stuck with the liability. In other words, fewer employers paying for a growing liability; not unlike Social Security with fewer workers paying taxes for an ever growing number of seniors collecting benefits.

This creates a cycle until the fund goes bust and workers receive only the portion of their benefit guaranteed by the Pension Benefit Guarantee Corporation (PBGC). The cuts in pensions allowed by this change while significant, are designed to leave a benefit greater (perhaps slightly) than the amount guaranteed by the PBGC should the trusts collapse.

Still not good news and a sad commentary on retirement security and our economy.

3 comments

  1. .

    You heard it first from me 😉

    This is why when I retired several years ago,
    I chose to cash out my pension in a lump sum…
    which is still growing under my supervision.

    .

    Like

      1. .

        I was blessed to work for a company that had a 401K and a pension.
        When I retired, I cashed out both and rolled them over into self-directed IRAs.

        I try to plan ahead. I am just beginning to take a small amount out each year…
        so I don’t have to take larger amounts out later [and pay more taxes] under RMD rules.

        .

        Like

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