Ask Terry Questions Pension termination and group annuity

Pension termination and group annuity

By Terry Savage on December 05, 2019 | Financial Planning / Retirement

I was just notified that my very well funded pension plan was beginning the process of terminating and transferring to an insurance company group annuity.
It has been frozen (no new participates or accrued benefits) for 10 years.
My concern is that I will lose PBGC guarantee and the solvency of the new group annuity insurer witch has not yet been named. Is my concern justified?
Thanks I enjoy your newsletters and weekly ChiTrib column!

Terry Says

Join the club — of employees (starting with IBM around 35 years ago, which started the trend) who have found their well-funded pensions terminated. You’re right that an insurance company annuity promise is only as strong as the insurance company behind it — and they are funded by STATE guarantee funds that don’t have ANY MONEY in them (but would in an emergency be funded by assessments on other insurers doing business in the state)! Then again, the PBGC is funded by a quasi-government guarantee (after assessing other corporate pensions) and that “guarantee” comes from a government that is $23 Trillion in debt! I’m guessing that none of this is very reassuring!

Here’s what should let you sleep at night:
1. You’ll likely be offered a new 40l(k) plan –with a company matching contribution. Sign up for that plan.
2. If you research the safety of the insurer and are worried, it is within your rights (or as a group of employees anonymously) to complain to the US Department of Labor which, under ERISA, regulates corporate pension plans. They might start an investigation of the safety of the new insurer or the “deal” that is being offered in exchange for current benefits.
3. Once you get this group annuity you may be allowed to “roll over” your portion into a better annuity plan. Get details on this availability from your HR department.
4. This highlights your need not only to continue to save in a company plan, but to save OUTSIDE your plan in either a Roth IRA if you qualify based on income, or just in a money market deposit fund, or mutual funds.

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