The Pension Benefit Guaranty Corporation or PBGC was created by the Employee Retirement Income Security Act of 1974 as part of the federal government. The PBGC is the government equivalent to pension plans as FDIC insurance is to banks. The U.S. government requires all pension plan administrators to pay an insurance premium through the PBGC into a savings account in case a plan goes insolvent. But surprise, the PBGC is now broke so it can no longer bail out soon-to-go-broke pension plans. And unfortunately there are many pensions that don’t have enough money to pay employees the contractual benefits they promised.
So, many people who worked for city and county governments across the country are getting notices from pension plan administrators that money will run out within 10 years. More and more people are getting these notices, which is sometimes newsworthy, but many times it is not common knowledge. If you were retired and got a notice like this, what would you do?
Detroit is a vivid example. It filed bankruptcy because retirement plans represented 84 percent of their entire debt. Illinois was just in the news in November of 2015 saying it will have to cut retirement income payments, or file bankruptcy. California is also in deep trouble. Its pension debt amounts to 74 percent of all debt. Pension benefits are becoming just too big to be paid for by many state, county, and city governments, so the notices keep going out and the bankruptcy threat keeps climbing higher. Only the federal government has been able to keep paying out employee benefits but we all know that’s only because they can just print more money. Since states and counties can’t just make more money all they can do is file for bankruptcy. A search on the Internet will reveal how many cities that have recently failed due to pension debt. Stockton, San Bernardino and 10 other cities in California have filed bankruptcy and there are many more local governments and companies on the ragged edge of filing as well due to financial mismanagement.
Headlines like this one, which appeared in January of this year on the Internet, will start cropping up more often as this year goes along:
“This Is Going To Be A National Crisis” – One Of The Largest U.S. Pension Funds Set To Cut Retiree Benefits
So What to Do? You can prepare yourself. If you have a pension plan, do not take it for granted — don’t assume it will be able to pay you as stated. Check out your pension’s health and get a copy of the annual report and stay tuned in. If you find your pension is in trouble, it is better to know now and not continue working for your employer for another 15 years or more, only to lose your benefits. Take action and learn the rules.