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Union Pensions Running out of Money, Fast

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.

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  • Anthony

    We’re not just identifying defined benefit pensions; questionable accounting practices, full funding decisions, rose-tinted investment projections, and sundry other choices have brought pensions to this moment. In a climate of change and ongoing creative destruction, how does a economic/political system reconcile promises to current and expectant pensioners with economic reality? Trends tell us…are factors limiting options.

  • Kelly Hall

    Many would-be public pension recipients knew full well that the benefits promised them were far too generous to be sustainable. They’re expecting to live the good life in retirement, including lifetime medical, on the backs of hard-pressed taxpayers, most of whom have nothing to look forward to other than Soc Sec, Medicare (maybe??) and crappy 401k’s. They should be happy with getting even a fraction of what they expected, because any amount they receive is more than the vast majority whose taxes pay those benefits.
    If they want to protest, let them go to the cemetery and seek redress from the long-dead politicians and union cronies who negotiated these pie-in-the-sky deals.

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