Posted by James Financial Services Inc

Ways You Can Lose Your Retirement Benefits & How to Protect it

Ways You Can Lose Your Retirement Benefits & How to Protect it

When was the last time you heard the good news about retirement? Instead, you've probably seen alarming headlines like this:

Are you worried about your pension or your parent's pension? And headlines such as this on your TV or online. This article describes the laws that should protect your pension benefits, some of the limitations of these laws, and how you can protect yourself.

First, we take the situation in which you can lose your pension and provide possible solutions to prevent it.

1) Your pension plan is underfunded

A major problem with traditionally defined benefit pension plans today is underfunding. Do they have money to meet their anticipated future commitments? The problem is particularly acute in the case of multi-employer pension plans, a type of pension plan intended primarily for unions working for several companies.

The United States of America Department of Labor's Employee Benefits Security Administration (EBSA) maintains a list of plans with funding status classified as critical, critical, and declining or endangered. In 2020, 121 plans were critical, 65 were critical and declining, and 61 were endangered. A critical plan has less than 65% funding, a critical and declining plan must become insolvent in 15 years, and a declining plan is less funded at more than 80%.

Examples on the 2020 list include the Timber Industry Pension Scheme (critical), the Automotive Industry Pension Scheme (critical and declining), and the International Bricklayers and Trowel Trades Pension Fund (endangered).

Most multi-employer plans don't have issues, but there are so many that Congress included them in the massive American Rescue Plan Act of 2021, passed in March 2021. The new law will provide the Pension Benefit Guaranty Corporation (PBGC) funding for pension plans. Who is at serious risk of insolvency? They will be able to apply for special assistance in the form of a one-time payment to cover plan obligations through 2051. Unlike traditional PBGC loans, which are based on insurance premiums, the new funds will come from the government's general tax revenue.

Laws that protect you

The Employees Retirement Income Security Act of 1974 (ERISA) protects workers and retirees under traditionally defined benefit pension plans. It also created the Pensions Benefit Guaranty Corporation (PBGC). If your plan participates in the Pensions Benefit Guaranty Corporation program, this agency guarantees you benefits up to certain maximums.

PBGC currently covers approximately 22.7 million workers and retirees in approximately 23,900 single-employer plans and 10.9 million employees and retirees in approximately 1,360 multi-employer plans.

Pension plan sponsors normally fund the PBGC. Companies that currently have defined-benefit pension plans pay an annual fixed-rate insurance premium to PBGC on behalf of each participant.

It also pays an additional variable rate insurance premium if the plan is underfunded. The larger the fund, the higher the variable rate bonus, subject to an annual maximum per participant.

Multi-employer plans also pay an annual insurance premium to PBGC. The price is based on the number of participants covered by the plan.

The Guaranteed maximum PBGC coverage varies by plan type and is subject to change.

For example, in 2022, a worker with a single-employer plan could receive a maximum of $6,204.55 per month at age 65 if receiving a life annuity. If they choose to receive a joint and survivor pension of 50%, they will receive a maximum of $5,584.10 per month.

Maximum benefits for multi-employer plans are calculated with different formulas but are significantly lower than for single-employer plans.

2) Your employer goes bankrupt

Ironically, pension liabilities have contributed to the destabilization of big business and the dangerous rise in pensions. Sears, which filed for bankruptcy in October 2018, is a well-known example. The then-CEO said the $4.5 billion the company paid into its 2005 retirement plans made it difficult for Sears to invest in operations and compete with other large retailers who had no significant pension obligations, the company reported.

Laws that protect you

The rules that apply here are similar to those described in the last section. If your employer cancels your pension plan due to bankruptcy, PBGC will step in if the plan is covered. It will then pay the employees the promised retirement benefits that the employer does not respect, up to the maximum guaranteed amount.

A company's retirement finances are separate from its own finances. This means that a company may go bankrupt but have an adequately funded pension plan, or it may be doing very well, and its pension plan is underfunded. This separation also means that creditors cannot recover pension assets from a bankrupt company.

3) Your pension falls into a loophole

Pensions that receive church status from the federal government can save money because they don't have to contribute to the PBGC pension insurance fund unless they decide to do so. Nonetheless, if they choose not to be protected, their employees who participate in their pension plans will not get the benefit of that insurance or be protected by ERISA.

According to the Pension Rights Center (PRC), a nonprofit consumer group, most church pension plans waive federal pension coverage. In addition, church plans do not have to pay benefits equitably, give employees information about their benefits, plan investments, or even fund pensions adequately.

This exemption, intended to maintain the separation of church and state, applies to religious organizations of all faiths. It also applies to entities related to these organizations, such as hospitals and schools.

Laws that protect you

If you work with a religious organization that has elected not to be covered by federal pension law, state law applies. State law "generally requires administrators who run church plans to act carefully, wisely, and exclusively in the best interests of plan participants.

If you feel you have been wrongfully denied retirement benefits because of your religious employer, one option is to appear before a jury in state court and seek punitive damages. There's no guarantee you'll win, of course. There is also no guarantee that your employer will have money to pay the penalty if you win.

In addition to pursuing legal action, the Center for Pension Rights encourages struggling religious workers to seek attention through social and traditional media and reach out to Congress members to raise awareness and help. Ensure your former employers know how to contact you if you move.

Steps to protect your retirement

Is your retirement security a flickering flame that your employer can put out at any time? You may be able to do something to protect yourself before you smell smoke and seek PBGC protection.

There is the old three-legged stool. Multi-income retirement plan: social security, pensions, and personal savings. However, a bench with only two legs is not one you can comfortably sit on as it is unbalanced and unstable. And you shouldn't easily give up seeking the benefits you're entitled to. Tilt your odds in your favor by following these steps.

1. Keep your information up to date

The first thing to do is ensure your contact details are accurate and up to date with any company that owes you pensions, especially if you no longer work there. Your former employer must know how to contact you.

It may be hard to believe, but the PBGC claims that more than 80,000 workers have unclaimed pensions. Employers can lose track of former employees who move or leave their company. 

2. Review and Save Recordings

The next thing you need to do is review the annual disclosures from your company and keep a copy of your records. When you retire from the company, review your records and make sure your salary figures and years of service are correct.

The Center for Pension Rights recommends that workers keep annual W-2 forms to prove their income history, plan benefit statements, plan notifications, and other official documents, such as a brief plan description. If the employer makes a mistake in your records or loses records, you will have a backup to verify what is owed.

3. Ask for help

Workers can also call professionals for help. Also, the Employee Benefits Security Administration (EBSA) has consultants who can tell you about your rights, help you find a lost pension, and even talk to a plan administrator on your behalf.

4. File a complaint

If you feel that your pension has been mismanaged, you can file a complaint with the Employee Benefits Security Administration (EBSA). If your complaint is distinct and indicates that the employer or former employer violated social security laws, the EBSA review unit must investigate. Even non-specific complaints can lead to an investigation when multiple sources report issues with the same entity.

Bottom Line

Several situations can jeopardize your retirement, including insufficient funding, mismanagement, bankruptcy, and legal exemptions. Some laws protect you in such circumstances, but some offer better protection than others.

Unfortunately, there's no guarantee that you won't be among the disgruntled employees who don't have and may never receive the promised retirement benefits. But, you don't have to give up the money you owe without fighting. If you need help, contact your attorney, the media, the judiciary, and the government. 


  • Pension plans can be underfunded due to poor management, low return on investment, employer bankruptcy, and other factors.

  • Religious organizations may waive pension insurance, which reduces the safety net for employees.

  • Single-employer pension plans are better than multi-employer plans for union members.



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