A Pension Crisis in the Making?

Many people rely, at least in part, on a pension for income after retirement. What is a pension? A pension is an arrangement in which an employee receives income after retirement from an employer (for example an organization, a government agency or a labor union). The funds to pay for this income are typically acumulated during the employee's working years and are managed in a pension plan.

Some people, including members of congress, now fear a pension crisis. During the last decade, several large corporations have gone bankrupt. When companies go belly up and after the dust settles, the money these organizations accumulated in pension plans typically isn't enough to pay for the benefits that employees were promised. In other words, these pension plans are underfunded.

To provide a level of insurance, the US government in 1974 established the Pension Benefit Guaranty Corporation (or PBGC). To protect underfunded pension plans, the PBGC receives insurance premiums from the people that manage the plans. In the last few years, the PBGC has had to take control of pension plan of well known companies such as Bethlehem Steel, United Airlines, Enron, and many others. According to the PBGC web site, the agency currently protects the the pensions of 44.1 million American workers and retirees.

But what if the PBGC is underfunded? What if the agency that's supposed to protect pension plans doesn't have enough money to do so? We'll examine this issue and other issues around pensions and retirement in future posts to this blog.

Tags: pensions, retirement