Posted on 22 April 2011
By Mark Miller
Can you count on your pension when it’s time to retire? I get that question often from private sector workers worried about their pension plans in the wake of the financial crisis and 2008 market meltdown.
They’re surprised when I tell them not to worry. Nearly all private sector defined benefit (DB) plans are backed by the Pension Benefit Guarantee Corporation (PBGC), a little-known federally sponsored agency that insures nearly all private sector plans. If you work for a company that goes belly up, the PBGC takes over the plan and its obligations; while some higher-income workers take a haircut on benefits in those situations, most workers get 100 percent of promised benefits.
By law, the PBGC is funded entirely through insurance premiums paid by plan sponsors. But the agency has been chronically underfunded due to a mismatch between the premiums charged and the risks it manages.
The Obama Administration’s 2012 budget proposal calls for a $16 billion boost in premiums over 10 years – but also seeks permission for PBGC to set premiums without Congressional approval, via a process similar to the one used by the Federal Deposit Insurance Corp. PBGC also proposes developing a new approach to risk-based pricing for weaker pension plans.
Some industry experts worry that the plan could prompt more companies to abandon their defined benefit plans. Read the full story at Reuters Prism Money.