Underfunded Pension Plan

  

Categories: Retirement

Pension plans have to look well into the future. They collect contributions from workers and employers. Then they have to invest the money, building up a big enough nest egg so that, when people retire decades down the road, the fund has enough cash to pay for everyone's golden years.

Sometimes, it doesn't work out. Sometimes, contributions don't match expectations. Sometimes, the market doesn't cooperate, or the investments go south. Whatever the reason, the pension plan has not saved up enough to pay for its members' retirement. To put it in accounting terms, the pension plan's liabilities outstrip its assets. The plan doesn't have enough funds; it's underfunded.

An underfunded pension plan puts its retirees in significant financial danger. Unless it gets bailed out by some outside source, the pension plan will eventually run out of money, and won't be able to pay the benefits it promised to workers before they retired.

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Finance: What is Pension Benefit Guarant...0 Views

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Finance Allah shmoop What is the Pension Benefit Guaranty Corporation

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Well the PBGC is a notionally independent agency of the

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federal government Its goal is to protect the retirement incomes

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of nearly forty million American workers in nearly twenty four

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thousand private sector defined benefit engine plans And that mission

00:25

statement is right off their website The agency was set

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up in nineteen seventy for is part of Arisa Employee

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Retirement Income Security Act to protect defined benefit plans That

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one were there Benefit is a huge deal because it's

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non identical Twin sister is a defined contribution plan The

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big diff well in a defined contribution pension plan employees

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contribute some percentage of their income to their retirement pension

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and the employer matches it and that's it The money

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gets invested in the stock market and goes up and

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down and up and down but over time mostly up

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And then the employees retires Decades later owning whatever the

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market or their investments that they risk say they young

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period End of story But in a defined benefit plan

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the employer essentially guarantees a minimum amount of invested return

01:16

That is the big boss Usually the federal government with

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its union employees on taxpayer dollars then guarantees a raid

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of say nine percent a year to the employee retiring

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in the form of a minimum monthly draw from their

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pension that the employees can take out If the market

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goes through a really bad spell well then it's up

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to the company to make up the difference to that

01:35

employees The people who framed a Risa knew of the

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likely issue that the guaranteed investment return could end up

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bankrupting states and or the country So PBGC was formed

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and it helps a lot of people like one point

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five million who ultimately rely on PBGC to bail out

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their pensions And if you're one of those people while

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you can expect to get something like sixty five thousand

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dollars annually or about fifty three hundred bucks a month

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assuming you retire at sixty five So if you retire

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early well those cheques arriving in your mailbox won't be

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quite so heavy Retire late in while the numbers go

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up And maybe the best part is that the U

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S taxpayer doesn't need to get all up in arms

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Since the dough used to manage PBGC doesn't come from

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John Q Taxpayer but rather from the private worlds employers

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So in forty or fifty years PBGC may be your

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