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Dark Clouds form over Defined Benefit Pension Plans and PBGC
Posted on: 2006-12-14 14:33:49 Dark Clouds form over Defined Benefit Pension Plans and PBGC By Frank Jersey (c) 2005 If you belong to a Defined Benefit Pension Plan, your future benefits may be in jeopardy. If the company that offers the Pension Plan fails or runs into difficulty and passes the pension on the Pension Benefit Guarantee Corporation (PBGC), as has recently happened with Delta airlines and Northwest airlines, billions of dollars of pension benefits will have to be made up by the PBGC. PBGC itself has an approximately $22.8 billion deficit in 2005. This all translates into PBGC eventually running out of money. PBGC takes in about $1.5 billion in insurance premiums from companies and makes another $3.9 billion from investment income. So it is easy to see how Pension Benefits passed on to the PBGC would fall short if either the investments do not perform or if more large companies pass billions in benefit responsibilities on to the PBGC without passing on the cash/assets to pay for those benefits. Defined Contribution Plans, like 401k plans, have the employers and employees contribute to a retirement fund. When the employee retires, the employee can draw from the investment principal and/or investment gains that have accumulated for that employee. The employee can always see the funds. In a Defined Benefit Plan, the employee gets a report of the benefits to be received, but this report does not take into account what will happen if the company cannot meet its pension obligations and passes the pension on to the PBGC. Thus, the employee may be blind-sighted if the company he or she worked for falls on hard times and passes the pension plan responsibilities on to the PBGC. Every person in a Defined Benefit Plan should inquire as to the soundness of the pension plan. With the PBGC currently having more obligations than funds, it is inevitable that the PBGC will eventually run out of money. One solution to the problem is for Congress to overhaul the PBGC system and ensure that companies sufficiently fund the PBGC for all obligations that the PBGC has at any one point in time. Mr. Jersey is the General Manager for 2050 Systems, LLC. 2020 Systems, LLC is a provider of Income Management Applications Software for Consumers. For more information visit www.2050systems.com or visit Mr. Jersey's retirement information site at www.someonesgottadoit.com. |