If your company goes bankrupt what happens to your Pension? Will you be left out in the cold? Will the money you have been counting on for your retirement be gone? Will you be forced into continuing to work, or even worse, be forced into returning to work after you have already retired?
Safeguards Against Losing Your Pension Plan
Fortunately, it is not as bad as most people think! There are safeguards in the United States to prevent you from losing your pension plan. In the United States every defined-benefit retirement plan is insured, at least to a point. Most will receive all or at least most of their company pension even if your company goes bankrupt. However, in some cases, it may not be every penny you expected.
What Happens When a Company Goes Bankrupt?
When a company goes bankrupt they have two choices. They can reorganize and try to stay in business by reducing costs and attracting new investors, or they can liquidate. The pension plan is usually terminated in reorganization and always terminated in liquidation. So, then what happens? A federal insurance agency called the Pension Benefit Guaranty Corporation (pbgc.gov), takes over the pension payments. Only employees with the largest pensions actually take a hit. The Pension Benefit Guaranty Corporation maximum annual payment, which rises with inflation, is $54,000 this year for workers who retire at age 65. As with any insurer, the PBGC has some restrictions. For example, it prorates recent pension increases. However, in all, 84 percent of retirees get their full pension even after bankruptcy.
A Few Rare Cases Under Reorganization
In a few rare cases of a company bankruptcy reorganization, the employer maintains the its pension plan. That normally only happens for one of three reasons.
- The benefit is low
- Employee turnover is high
- The pension plan is new
Avoiding Bankruptcy is Better For The Company.
In most cases, however, it is always better for the company to avoid bankruptcy altogether. In December of last year, Congress gave some help in this direction by relaxing the 2006 Pension Protection Act‘s strict rules governing pension funding. As counter intuitive as it may seem, this is one move that endangered workers should embrace. As a result of this move, according to Dallas Salisbury, president of the non-partisan Employee Benefit Research Institute, ” Given the economic downturn, employees are better off than if the company was forced to make a large pension contribution”. “It’s better to stay in business than make a pension contribution”.
How Does This Affect Me?
I am actually receiving a pension from a large company that is not bankrupt. I have been asked by many of my friends what will happen if the company I retired from goes under during these difficult times. Thankfully, as a result of the above protections, I can answer them … as far as my pension goes … not much!
Protection For Health Care Benefits Are Not The Same!
I wish I could say the same for the medical benefits. They are not nearly as well protected. In my last few years of employment, the cost of health care benefits for retirees, which at one time were an excellent value were increased to the point where it was not affordable to maintain. I was forced to purchase a private plan to hang in there until age 65 when Medicare kicks in! It is my single largest monthly expense. It’s not often you wish you were older but when it comes to health care insurance I can’t wait until I’m 65. Papa B.