Broker Check

Pension Funding

| August 02, 2019

Underfunded public and private pension plans has been a major source of concern in recent years. A lot of emphasis has been put on the grossly underfunded public pension plans in states like California and Illinois. However, many private pension plans are in just as bad shape or even worse creating a public policy issue.

Congress is now taking up the issue with the House of Representatives passing a bill that will make $48.5 billion of forgivable loans to several multi-employer pension plans which are facing a pension shortfall in excess of $100 billion. These plans are in danger of failing in which case they will be turned over to the Pension Benefit Guarantee Corporation (PBGC). This typically means reduced pension benefits for the millions of retirees  who  are  receiving  or  are due to receive benefits under these pension plans. Naturally, aid of $48.5 billion will not close the $100 billion hole in the underfunded pensions but the point may be moot as the Senate is not expected to take up the bill.

The fear is that the PBGC itself could soon be unable to back even the reduced pension benefits that it provides should more and more private pension plans fail.

Of course, public pension funds are also under-funded which could put a strain on municipal budgets as the required pension payments that municipalities are required to contribute to make good on their pension promises could skyrocket. Yet public employees appear to be in a better position than private pensioners when it comes to collecting on troubled pensions.