Pension affected by the current crisis
Just because the stock market is reeling doesn’t mean that employers can slash retirees’ pension or take it away. The size of a pension check is based on the number of years employees worked and their salary. Once vested, employers must pay employees the pension they’ve earned.
Pension managers generally invest about sixty-five percent of their assets in stocks. The plummeting prices of stocks have put a strain on the funds employers are counting on to pay retirees. This, however, doesn’t mean that the promised benefits are in peril. Pensions are paid over decades, which is plenty of time for assets to bounce back.
If employees’ company were to go bankrupt, they would likely collect all or most of their pension. The federal Pension Benefit Guaranty Corporation would step in and cover employees’ pension, up to certain limits. The PBGC’s maximum payment for plans ended in 2008 is $51,750 a year.
There’s one way that the current crisis could hurt an employee’s pension. If a pension fund’s investment losses are deep enough, employers could be required to inject big sums of cash just as profits are being squeezed. If that happens, the company might follow the example of corporations, which have frozen their pensions. In that case employees would no longer accrue additional benefits in the plan, but would still be eligible for whatever benefits they had already earned.
Tags: Pansion