Yes, the chances are good that your pension plan is safe, but the reason why may not please you entirely.
The reason is that Uncle Sam, the world's biggest spending indigent, stands firmly behind many of these plans, promising that they'll be paid even if your employer has insufficient funds.How will he do that? In a pinch, by asking you for the money, like he always does. Somehow, the cost of fulfilling that guarantee must be paid by individuals in the form of taxes, fees or reduced government services.
There's no way to avoid it.
Of late, pension plan viability is a matter of even greater concern than before, made so by insecurity. It's understandable, of course, in view of the troubles encountered by banks, brokers, insurers and savings associations.
About 70 million Americans participate in 870,000 private pension plans now registered with the Internal Revenue Service, and some of them are indeed in financial trouble. Not all participants, however, are directly threatened.
The reason for their immunity is, of course, that the Pension Benefit Guaranty Corp. stands ready to make good on pension promises, at least for those people in so-called defined benefit plans.
In such plans, employers agree to pay retirees a fixed monthly income for life, based on salary and length of employment. If the plan falters, no matter what the cause, the pension corporation, created in 1984, steps in.
Since its founding, the federal agency has had to take over more than 1,500 underfunded plans and make the payments to pensioners. In the process, it has itself run up a shortfall exceeding $1 billion.
Moreover, the agency recently identified another $20 billion to $30 billion in underfunded corporate plans, some of which may not be able to meet their obligations during a prolonged or severe economic downturn.
That, you might agree, is not a reassuring financial prospect, considering that the guarantor of payment for members of troubled plans is itself financially distressed. Benevolent Uncle Sam reassures you with empty pockets.
Professor John McFadden has studied this intriguing situation, and with complete rationality explains that it can be resolved. The costs will be distributed to the public, he says. The precedent is already in place.
McFadden is an authority on the subject; he is a professor at The American College in Bryn Mawr, Pa., where he coaches the experts, the people who become chartered advisers in insurance, estates and financial planning.
This is how he reasons: If the federal government is willing to charge every man, woman and child $1,000 to insure bank deposits, then it is hard to believe that it will allow the pension corporation to say, "We really didn't mean it."
As the law stands, and has since the Employee Retirement Income Security Act (ERISA) was passed, all such pension payments up to $2,200 a month, indexed for inflation, are insured by the corporation, broke or not.
The judgment already has been made, he says. "Spread the cost rather than stiff individuals." Congress will make the guarantee work no matter what it costs the public. It's a promise as certain as Uncle Sam's ability to tax.
Stepping back from the worst-case scenario, McFadden doesn't think the nation's pension plans are nearly in the same category as the savings and loan defaults. "They are monitored much more closely," he says.
Still, many pension plans remain vulnerable to the uncertainties of economic cycles. These are the "defined contribution" plans, as distinct from the "defined benefit" plans.
Defined contribution plans have no fixed payout guarantees by the employer or fund administrator - and no federal bailout provisions. To insure would be difficult, because benefits are subject to investment returns and profits.
These plans could indeed be hazardous to pensioner health. In fact, they have been and are right now, since payouts are likely to fall right at the time when recipients can least afford to do without them, that is, in a recession.