Review the Safety of Your Pension Plan

The “What-If?” Review

Some financial and retirement experts are recommending that workers and retirees who are dependent on pension plans do some “what-if” scenario planning to review how well prepared they might be for a possible cut in their pension benefits.

The Current Climate

The practical result of cities like Detroit filing for bankruptcy is that city workers and retirees could see their pensions reduced, perhaps drastically.

Pension Cuts

One city in Rhode Island that declared bankruptcy in 2011 cut one out of every three of its retirees’ pension payments by more than half.

It’s Not Only Cities

The Teamsters’ Central States, Southeast & Southwest -Pension Plan, the nation’s largest multi-employer pension fund, has liabilities ($34.9 billion) that are almost double its assets of $17.8 billion.

Do Some Digging

Another review step recommended by some experts is to find out to what degree your pension plan is funded. Some cities’ and states’ pension plans remain well funded, while others are not. Employees who participate in private and union pension plans are permitted by law to access their plan’s funding notice to find out to what degree their plan is funded.

The States’ Pension Gap

The gap between how much money states have promised to pay their employees in pension benefits and how much they have actually set aside to pay these benefits totaled more than $1.3 trillion in fiscal 2010, according to the Pew Center for the States’ analysis of pension and retiree health-care funding.

Local Government

It’s important to note that the pension benefits of most state and local government retired employees are relatively safe.

The combined assets of all state and local government pension funds exceeded $3.5 trillion at the end of the first quarter of 2013 — this was more than 15 times the amount of money paid out by these funds annually in benefits.

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