Is The PBGC is going bankrupt? How it affects your retirement.

monopolyLast week, in it’s annual report, the PBGC announced a record deficit of $35.7 billion.

The Pension Benefit Guaranty Corporation (PBGC) is a United States Federal Agency that was created by the Employee Retirement Income Security Act of 1974 (ERISA) to protect companies’ pension benefits[1].  For companies whose pension plans are insured by the PBGC, the PBGC will pay employees a portion of the pension funds if the company goes bankrupt.

The PBGC’s deficit has been increasing annually over the past several years due to a variety of factors.  Unless the government steps in, this will result in the PBGC going bankrupt.

As you review your own company’s retirement plan options (for example taking an annuity option versus a lump sum distribution), knowing the back-up plan is important. If the company cannot meet its payout obligation, and the PBGC is having its own financial challenges, what are you to do in order to protect your pension payouts?

Why does this matter for you? If you were to take an annuity option from your employer when you retire and the company were to go bust, what will the PBGC do for you?

  1. The PBGC does not guarantee every dollar owed to you from your company pension plan – there is an annual cap.  For 2013, the maximum guaranteed about is $ $57,000/year (for people who begin receiving benefits at age 65).
  2. The PBGC is running a deficit that will eventually bankrupt it, voiding your pension guaranty.
  3. The time has come for people to start saving outside of their employer’s plans for their retirement.

There are some major misconceptions about what retirement is and how much money you need to put away to have a comfortable retirement.

  • The typical American household will experience a 28% income shortfall in retirement?[2]
  • 4 out of 10 retirees do not have sufficient income to cover their monthly expenses.

It is time to take additional steps to prepare for your retirement. You should not solely rely on your company being able to pay your pension, nor the PBGC to pay you either.

Call us today to schedule a retirement savings assessment and discuss retirement planning and year-end planning opportunities to minimize taxes today so you can have a more secure future.


[1] In private defined benefit pension plans

[2] 2012 Fidelity Retirement Savings Assessment

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