“Why is Your Pension in Trouble? What 5 Steps You Should Take Now to Protect It”

“Why is Your Pension in Trouble? What 5 Steps You Should Take Now to Protect It”

Millions of retirees and workers risk losing their retirement pension benefits since these plans might become insolvent in the near future.  This will result to these employees receiving only a portion of their pensions.

If you’re worried about your pension learn on what you can do to protect yourself. Note that here we’re talking about a specific kind of pension: defined-benefit plan. The following discussion is geared to show why your pension might be in trouble after all and ways you can use to protect yourself from the crisis.

Underfunded Pension Plans

Mismanagement, poor investment returns, employer bankruptcy, among other factors can result to underfunded pension plans. This forces the employer to do some pension reforms which is a movement to adjust pensions to fit the money available.

In fact, reports indicate that the services in a large number of schools especially in California have meaningfully been affected by the rising pension and health benefit costs. In essence, it costs the students to keep the benefits consistent to the retired teachers and administrators.

A number of plans have been forced to drastically cut benefits if only to stay afloat, or collapse completely. This has forced thousands of beneficiaries to accept deep cuts in their pensions and can therefore not access the benefits they have earned.

Bank of America reports indicate that there is an inverse relationship between investment in infrastructure and pension fund contributions. Courts have consistently upheld the obligations of municipalities to fund the promised retirement programs. The federal government’s pension Benefit Guaranty Corporation (PBGC) safeguards the pensions of American workers though its protection is limited.

Many sponsors are not ready to pay the benefits they promised to the current and future retirees since they have not set aside the needed assets. The only way to the state and the local government would fund the pension plans would be to raise taxes or reduce public services.

Who Will Pay the Debts?

Governments worldwide promise to pay their workers certain benefits at certain times. It’s paramount to note that promises are a kind of debt. The public worker pension plans are massive promises. That’s a debt. If that’s a debt, the lenders should be the workers who have extended their credit by providing services. These workers rightfully expect to receive their agreed-upon pension for years of providing labor. As with any other debt, the borrower is obligated to pay back the debt.

It’s interesting to note that many young workers in America who are very far from retirement age are serious about their long term futures and they ‘re engaged in saving plans. However, demographic and economic realities indicate they’re unlikely to get the kind of benefits that current retirees are getting. This applies for teachers for police, firefighters, and all other sectors of the public.

Another challenge is that the taxpayers who might have to cover these amounts are mobile. They might to choose to migrate to other states with lighter tax burdens and fewer commitments. The retirees beneficiaries on the other hand might no longer live in the states that pay them such that they won’t even vote for the people who govern their monthly incomes. Interesting, isn’t it?

Birth rate remains considerably low across populations, and is set to fall further pretty much every where. So how is this declining population going to support a growing number of retirees?

Employer going bankrupt

Ironically, pension liabilities can possibly destabilize a large company and get your pension in trouble. A company’s pension funds are separate from its own finances. Consequently, a company can be bankrupt but still have its pension plan sufficiently funded, or it can have an underfunded plan while it’s doing great. The separation means that you as a creditor can’t claim a bankrupt company assets as compensation.

While the PBGC is instrumental in its role to protect your pension, it’s hard to predict what the financial status will be like in the future due to its current shaky position.

The problems outlined above have the potential  to cause real problems to future retirees. That’s why protecting your pension in addition to having appropriate alternative investments could be a wise decision.

What You Can Do To Protect Your Pension

Diversify

If you’re a younger worker, stop depending so much on your defined –benefit pension. You can look for alternative ways to invest apart from your retirement benefits. Fund your 401(k)the much you can and claim every penny from your employer. Try as much as possible to get out of debt, double your savings and avoid overspending.

Keep your information accurate

Always keep your contact information accurate and updated with any company that owes you pension benefits. This is especially so if you no longer work there since your former employer might need to reach you.

Review and save your records

You also need to review the annual disclosures and have a copy saved in your records. When you retire, your salary and years of service should correspond to the records provided by the company.

Make sure you reserve your W-2 forms to prove your earnings history, your benefit statements, official plan documents and notices. These will help in case your employer loses your records or makes an error. You can produce your records as a backup.

Look for help

Don’t be afraid to ask for help from resources that offer counseling services and legal assistance if you have questions concerning your pension. Additionally, the federal government’s Employee Benefits Security Administration has advisors who can offer assistance on finding a missing plan, or speed up on your rights in case of issues.

Filing a complaint

If you suspect your employer has mishandled your pension, you can file a complaint with the Employee Benefits Security Administration- a division of the U.S Department of Labor- which manages retirement plans. If your former employer has violated a pension law, they investigate and take appropriate steps to assist you.

Conclusion

When investing for your retirement, diversity is important. Don’t  put all in one basket. You need to consider the wide range of choices in which you can invest your money apart from the pensions. Consider stocks, bonds, mutual funds, and exchange-traded funds as well as other alternative investments in real estate, gold, silver, diamond, and art.