What does it mean to say a Pension is Underfunded?

PensionsWhen you read or hear about a Pension Plan being underfunded, what does that mean? It means they don’t have enough assets to cover their liabilities. Assets are the pension plans investments. Liabilities are the payments to retirees. Underfunding is a wide spread problem today according to this study cited in Financial Advisor Magazine.

So what happens? In some cases, assets can be increased by adding more money to the pension. But, if more money is not available, then the pension may need to be terminated. Termination is monitored and managed by the Pension Benefit Guarantee Corporation (PBGC).

There are maximum benefits and certain benefits are not guaranteed. These maximum benefits depend on many factors and a person covered will get the information pertaining to their plan with a termination notice. Typically maximum benefits today are not retroactive to past terminated plans.

The PBGC is itself underfunded with more liabilities than assets. There are no answers at this time as to who will guarantee the guarantor (other than taxpayers at large)?

PS. You can Google “PBGC underfunded” and “pensions underfunded” for links to current updates on these two issues.

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5 Responses to What does it mean to say a Pension is Underfunded?

  1. Larry Frank, Sr. December 19, 2013 at 6:01 am #

    Here’s an article today on how Congress is trying to solve PBGC under funding: PBGC premiums to rise under budget deal: “The budget approved by Congress on Wednesday raises premiums companies must pay to the Pension Benefits Guaranty Corp., a point that might cause many employers to settle their retirement plan liabilities through lump sum payments or by buying annuities.” http://www.benefitspro.com/2013/12/18/pbgc-premiums-to-rise-under-budget-deal?t=retirement

  2. Larry Frank, Sr. August 31, 2014 at 12:27 pm #

    An article on how pensions may have some appearances of Ponzi schemes where “Increasing it appears those “last out” of pension plans may be left holding an empty bag. ”

    http://fiduciarynews.com/2014/08/are-pensions-merely-ponzi-schemes/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+FiduciaryNews+%28FiduciaryNews.com%29

  3. Larry Frank, Sr. March 30, 2017 at 1:17 pm #

    A couple of other articles on the issues of pension funding … afterall … EVERYTHING depends on the markets – even pensions!

    Pension Crisis Too Big for Markets to Ignore
    https://www.bloomberg.com/view/articles/2017-03-24/pension-crisis-too-big-for-markets-to-ignore

    Will Collapsing US Pensions Fuel Next Crisis?
    http://pensionpulse.blogspot.ca/2017/03/will-collapsing-us-pensions-fuel-next.html

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