When 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.