The number of insolvent union pension plans is steadily increasing, and the Pension Benefit Guaranty Corporation (PBGC) estimates that the number of insolvent funds will double by 2017. If these estimates are accurate, the PBGC itself could run out of money within 15 years, and much sooner if two particularly large troubled funds become insolvent.Needless to say, this spells trouble for anyone whose retirement money is locked up in these plans. Fund managers and the PBGC are beginning to think seriously about how to deal with this. Any solutions they come up with are likely to be painful for current and future pensioners:
If the insurance fund is exhausted, many retirees will see their benefits reduced to an extremely small fraction of their original value because only a reduced stream of insurance premium payments will be available to pay benefits….Experts and stakeholders said that, in limited circumstances, trustees should be allowed to reduce accrued benefits for plans headed toward insolvency. Also, some experts noted that, in their view, the large size of these reductions for some severely underfunded plans may warrant federal financial assistance to mitigate the impact on participants.
In other words, pensioners will likely be forced to accept serious cuts to their benefits if both their plans and the insurance funds run out of money. As pension funds fall like dominoes, one point has become increasingly clear: If you are counting on a defined-benefit plan for your retirement, you should begin to make other plans. Now.