Is Your Pension Going to Be What You Think It’s Going to Be?

American Airlines’ request to have the Pension Benefit Guarantee Corp. bail out its $9 billion in unfunded pension obligations should have executives everywhere taking a hard look at their employer-funded retirement plans.

Particularly for executives who work in troubled industries, if their employer hits the shoals, it’s extremely likely that the company will be looking at its pension plan as a natural cost-cutting target. Even if the company isn’t in trouble—if it’s up for sale (which, as we know from the last blog entry, isn’t limited to troubled assets) and the new owner is looking to reduce costs—the pension plan may be trimmed or cut altogether.

That, of course, doesn’t mean all the money that was in the pension plan is lost. If the plan is taken over by the Pension Benefit Guarantee Corp., the government-sponsored agency that insures most private sector defined benefit pensions, the PBGC will pay those benefits to retirees.

But, and these are big buts, those benefits will stop accruing on the date of the plan termination and the payout is capped. That cap should cover most middle-income earners, but it probably won’t pay high-income earners 100 percent of their expected payout.

What can smart executives do to protect their pensions?

The first step is knowing what they have now. Executives need to read their benefit plans carefully and see how much is funded, how much is unfunded, and to what extent they can access it before their retirement.

They should also keep good employment history records, maintain a file of notices and documents relating to retirement plans and benefits, and—here’s the tough part—actually read the statements. It’s also smart to maximize other kinds of retirement savings, which most executives are hopefully already doing.

Reuters recently published a good Q&A on the matter that I recommend checking out.

The traditional, company-funded pension may not be with us much longer, so it’s in every executive’s best interests to make sure their years of hard work result in a comfortable retirement—regardless of what happens to that pension plan.

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