This is Jeff Rose,
Let me paint a picture for you. You’ve been working with a company for 20, 30, maybe 40
years and the only thing that you have to fall on for retirement is your pension. The
next morning you open your morning paper and then you read the news; your company is filing
for bankruptcy. Your heart literally sinks into your stomach. What are you going to do? Recently, American Airlines just announced
that they are filing for chapter 11 bankruptcy. A lot of American Airlines employees are worried
about what happens to their pension. This is a reality that many people face and they
want to know the answers. What happen to their pension when their company files for bankruptcy? Let’s take a look at some of the possibilities.
Regarding American Airlines, a common question is are the pension assets protected from the
chapter 11 bankruptcy? Let me answer that real quick, absolutely yes. They are protected.
The company cannot use your pension assets to repair creditors. There is that protection. Another common question regards what happens
if the defined benefit pension plan is terminated. This can apply both to American Airlines and
any other corporation. What happens there if the pension plan is terminated; the PBGC,
which is the pension Benefit Guarantee Corporation will step in and insure, just like the FDIC
would insure a CD at your bank, a certain amount. The amount that is in effect for 2011
is $54,000 per year or $4,500 per month is what they will insure. That is the maximum
benefit for the age of 65. Here are a couple other things that the PBGC
will insure and what they won’t insure. What is guaranteed by the PBGC? The PBGC does guarantee
basic benefits earned before a plan is terminated, which includes pension benefits at normal
retirement age, most early retirement benefits, annuity benefits for survivors of plan participants,
and disability benefits for a disability that occurred before the date the plan terminated.
That can be reassuring for those of you that have that PBGC coverage, but also keep in
mind that there are certain items the PBGC does not guarantee. Let’s take a look at some of those items.
The PBGC does not guarantee benefits for which you do not have a vested right when the plan
terminates usually because you have not worked enough years for the company, benefits for
which you have not met all age, service, or other requirements after the plan terminates,
benefit increases, and new benefits that have been in place for less than one year, early
retirement benefits that are greater than payments at normal retirement age, health
and welfare benefits, vacation pay, severance benefits, lump sum benefits for a death that
occurs after the date the plan ends, and lump sum payments exceeding $5,000 are generally
not paid. If you are worried about your company’s pension
plan if they do file for bankruptcy, for one I strongly encourage you to check with your
HR department. Make sure you truly understand how your pension works and all the ins and
outs to that. If you want more information about the PBGC you can go to their website
at and learn more about what the coverage there will take care of your pension. If you have any more questions, visit me.
This is Jeff Rose, We’ll see you again. The opinions voiced in this material are for
general information only and are not intended to provide specific advice or recommendations
for any individual. To determine which investment(s) may be appropriate for you, consult your financial
advisor prior to investing.