Sunday, January 18, 2009

"More Streets and Roads" on pensions: what happens with PGBC and "social security offset"?

Nancy Trejos has another reassuring column on what happens to pensions when employers go bankrupt, Sunday, on p F5 (Business) of The Washington Post. The link is here.

She discusses the Big 3 domestic auto makers. Congress has authorized only $13 billion of payouts to guarantee the underfunded $41 billion pension shortfall.

Yet, in most cases, average workers are still pretty well protected up to certain limits by PGBC. People who retire earlier are protected to lower ceiling limits, however. At 62, the protection is about 80% (a $42,660 max pension instead of $54000). I’m not sure if this sort of proportionality would apply to pensioners whose benefits are much less than these maximums.

The Pension Benefit Guaranty Corporation does not guarantee increases (such as COLA) made within the last five years before plan termination or bankruptcy.

Pensions often has “social security offsets”. Pension plans often assume that retirees will get the amounts promised in the past by Social Security. Companies, rightfully or wrongfully, count on this mechanism. That’s another reason why any reduction in social security benefits to reduce expenditures could be so deadly to some retirees.

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