Steve Coker, CFP
Is My Pension Protected?
While pensions are a complex topic most private (non-governmental) pensions are backed by a pension trust established by your employer to fund your pension, and are insured by the Pension Benefit Guarantee Corporation (“PBGC”). In essence, your employer sets funds aside to help fund your pension in the future. In the event that the pension itself goes bankrupt, the PBGC, a federal government agency, will step in to guarantee ‘basic’ benefits.
Of course, the PBGC does not necessarily guarantee the full amount of your monthly pension benefit. The PBGC only guarantees payments up to a limit set each year by the federal government. The guarantees also very greatly based on your age. You can find the Maximum Monthly Guarantee Tables at pbgc.gov, but as an example the 2023 monthly guarantee for a 60-year-old is $3,948.76 for typical pension annuity that pays for the life of the worker, and 50% of the benefit to the survivor. The guarantee rises to $10,084.50 per month for a 70-year-old. Since most pension benefits are below this maximum amount, the PBGC guarantee does provide good protection for most pension funds.
It is also important to understand that your employer going bankrupt is different from the pension plan going bankrupt. The pension funds are separated and typically invested in a diversified portfolio of stocks, bonds, real estate, and other investments to help support your pension payments over the years. The U.S. Department of Labor regulates pensions to ensure they maintain certain (but not necessarily 100%) funding levels. If your employer were to go bankrupt, the pension funds are designed to remain intact, but any unfunded employer amounts could be at risk. Pensions are required to disclose their funding levels to plan participants each year via a “Pension Funding Notice”.
You can learn more by visiting pbgc.gov or simply giving us a call. We would be happy to help.