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Post by judes on Aug 16, 2008 15:09:10 GMT -6
Wow, we just got a notice yesterday at work that we will no longer be able to receive our accrued pensions in the form of a lump sum payout anymore. They tied the reason to the new pension protection act of 2006 that prevents lump sum payouts if the pension plan is underfunded. Underfunding pensions is something companies have been completely and legally allowed to do forever. They announce this just as they announce 100's more jobs being terminated. I was counting on drawing this money out when I am let go to pay off my mortgage. So I started looking into the pension protection act that was passed in 2006 and the only entities I see getting any protection from it are corporations and the PBGC in the form of reducing the amount of money they actually have to pay out to pensioners. This is so maddening. Take a look at this chart which shows how much accelerated payments (up front lump sum payouts) are reduced under the great pension "protection" act. www.buckconsultants.com/buckconsultants/Portals/0/Documents/PUBLICATIONS/Newsletters/FYI/2007/FYI_11_08_07b.pdfAge GATT Basis PPA Basis With Full Phase-in Percentage Increase / (Decrease) 55 $ 179,280 $ 158,604 (13.0%) 60 162,588 146,520 (11.0%) 65 144,324 132,348 (9.0%) Payments beginning in 2008 will be greatly decreased. They will now be tied to corporate bond yields instead of the GATT or 30 year treasury rate. So once again the little guy is getting screwed. I know there will be nothing left if I have to wait to recieve annuity payments from this company down the road. So I must now kiss my pension that I have been contributing to and counting on for a long time Bye Bye. <Smooch>
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Post by unlawflcombatnt on Aug 16, 2008 16:21:58 GMT -6
Judes,
Thanks for posting this. I'd never heard anything about this before. Someone needs to research the Pension Protection Act of 2006. It sounds like it should have been labeled the Corporate Protection Act of 2006.
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Post by unlawflcombatnt on Aug 16, 2008 17:23:16 GMT -6
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Post by judes on Aug 17, 2008 9:46:49 GMT -6
Thanks for the link ULC, I will research it some more. As I was just skimming the table of contents on this massive bill you linked up, look what I found on the last page. A huge section related to tariffs! Why in the heck are tariff provisions being included in a pension protection bill? Looks like more tariffs were suspended with this bill, aint it great. eerrrrrggggg...
TITLE XIV: TARIFF PROVISIONS........................................................................................ 370 A. Suspension of Duties on Liquid Crystal Device (LCD) Panel Assemblies for Use in LCD Direct View Televisions ......................................................................... 370 B. Suspension of Duties on Ceiling Fans ........................................................................ 370 C. Suspension of Duties on Nuclear Steam Generators, Reactor Vessel Heads and Pressurizers ..........................................................................................................371 D. Suspension of New Shipper Bonding Privilege.......................................................... 372 E. Wool Trust Fund and Wool Fabric Duty Suspension................................................. 373 F. Miscellaneous Trade and Technical Corrections Provisions ...................................... 374 ix G. Vessel Repair Duties................................................................................................... 375 H. CAFTA-DR Provisions Related to Agreement Implementation ................................ 376
Our government is a complete and total farce!
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Post by judes on Aug 17, 2008 12:00:18 GMT -6
Well I muddled my way through page 20 of 380 pages and my head is killing me. Why does it take 380 pages to shore up pensions? So far it is trying to establish a minimum funding requirement for pension plans, which should be a good thing and something that should have been already required, I think. But the 20 pages I've read so far lend to so much subjectivity in determining how and if a plan is funded, that I don't think it actually changes anything. It also gives a lot of leeway to the Secretary of Treasury, and special provisions for Auto workers, that I can't really understand.
ex.
"The interest rate is to be determined by the Secretary of the Treasury on the basis of two or more indices that are selected periodically by the Secretary and are in the top three quality levels available. In determining current liability, the 1983 Group Annuity Mortality Table has been used since 1995. Under present law, the Secretary of the Treasury may prescribe other tables to be used based on the actual experience of pension plans and projected trends in such experience."
From the bit I posted above this will mean a reduced lump sum payment for plan participants.
and:
"The at-risk assumptions are not applied to certain employees of specified automobile manufacturers for purposes of determining whether a plan is in at-risk status, i.e., whether the plan’s funding target attainment percentage, determined using the at-risk assumptions, was less than 70 percent for the preceding plan year. An employee is disregarded for this purpose if: (1) the employee is employed by a specified automobile manufacturer; (2) the employee is offered, pursuant to a bona fide retirement incentive program, a substantial amount of additional cash compensation, substantially enhanced retirement benefits under the plan, or materially reduced employment duties, on the condition that by a specified date no later than December 31, 2010, the employee retires (as defined under the terms of the plan; (3) the offer is made during 2006 pursuant to a bona fide retirement incentive program and requires that the offer can be accepted no later than a specified date (not later than December 31, 2006); and (4) the employee does not accept the offer before the specified date on which the offer expires. For this purpose, a specified automobile manufacturer is (1) any automobile manufacturer and (2) any manufacturer of automobile parts that supplies parts directly to an automobile manufacturer and which, after a transaction or series of transactions ending in 1999, ceased to be a member of the automobile manufacturer’s controlled group."
I think I fall into the above group as I work for an auto part manufacturer spun off from GM in 1999, however none of the 4 conditions described apply to me as I wasn't offered anything to retire. But try as hard as I can to decipher this passage and I just get more confused. I need a lawyer, accountant and an actuarian for translation, ughh.
Other points I think I gleamed, companies will be charged an excise tax if certain funding levels aren't met, I gathered funding must be at 80% but again there are so many exceptions and subjective methods for determining. Companies can also apply for waivers to this requirement.
Also read elsewhere if a company is in bankruptcy, pension liabilities are now determined from the date bankruptcy was filed, whether the actual pension plan is terminated or not. Previous rules favored employees by calculating pension liabilities up to the point that the plan is actually terminated in regards to what the PBGC would be responsible for. Also as posted above employees will not be able to get their lump sum payouts from companies determined to be below certain funding. It seems the lien will go to the PBGC. What isn't clear to me yet, is if the PBGC actually gets the money from the company on their lean will pensioners be made whole, or will the substantially reduced amounts given out by the PBGC be applicable?
I will try to decipher more later, my head is killing me.
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Post by psychecc on Aug 17, 2008 12:58:47 GMT -6
Judes, I noticed that too in the part I scanned. Good luck with it. What little I understood sounded to me like an attempt to give employers less responsibility to make good on their pension promises. Probably, this is government easing requirements for employers in an effort to keep employees from accessing the government pension guarantee fund.
I've heard that there was a lot of winking and nodding from government officials toward corporations about not worrying too much about the pension funds because they (the government) weren't going to monitor funding levels anyway. I hope some of this makes sense since I'm talking about something I don't really understand.
The bottom line is that I hope you don't lose the right to the lump sum. The part I read sounded like they can't take that option away from you, but then, I didn't see anything about what happens when they've underfunded the pension plan. It's amazing that they could get away with underfunding and then get a break from honoring pensions BECAUSE they've underfunded.
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Post by judes on Aug 17, 2008 13:58:47 GMT -6
Thanks psychecc, that was a good summation, I have gotten the same impressions.
Well, I just reread the memo we were given at work and it said due to the pension protection act taking effect because we are in bankruptcy (have been for three years now) and the pension is underfunded we would no longer be able to receive lump sum payouts of our pensions. So it may just apply to companies in bankruptcy, not sure it's confusing.
Having been in bankruptcy going on three years, up until now all the employees who have been terminated from employment have been able to draw out their pensions in lump sums. All I know is that this will no longer be allowed now due to the pension protection act taking effect. It appears those who were let go prior may have been the "luckier" ones.
Aren't the employees in this situation the exact ones who need protecting for crying out loud. If a company is in good financial shape with fully funded pension plans, they are not the ones needing protection. I still haven't found where the protection is for employees whos plan funders don't fund their plans. I'll keep looking.
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Post by psychecc on Aug 18, 2008 8:41:07 GMT -6
Judes, I just re-read your above posts. I've also read through some of the link Unlawful supplied, and I agree with you that (despite all the vague wording and double-negatives) this shouldn't apply to you since you weren't offered the above mentioned options. I also read elsewhere in the link that they must offer you the lump sum option; however, I haven't seen the part about being in bankruptcy yet.
Again, as I mentioned in my post about your friend with cancer who was just fired, I think your Senators, Congressman/woman, or the current Democratic head of the committee in charge of the legislation might be able to clarify the law or even offer other assistance if you ask for it. I'm sure the Republican who was in charge of the committee at the time the bill was passed would do nothing but dance at your "retirement" party since he probably got a big contribution from GM for his services.
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Post by judes on Aug 18, 2008 15:32:18 GMT -6
Yes I may have to do that. I did ask in a meeting at work today to our benefit Exec. and he said the pension plan has to be at least 80% funded and you couldn't be in bankruptcy to get the lump sum payout due to the new ppa law. I think the passage above referring to certain already retired workers in the auto industry may have been the ones who were exempted from this rule.
So it appears even if a company is not in bankruptcy and the plan falls below the 80% subjectively determined level, they can stop lump sum payouts to employees. It seems kinda like it's in the companies control. If there is a "run on the bank" so to speak, they can miss a payment and avoid paying the lump sums. They are also allowed up to 3 waivers to suspend paying into the plan, not sure of the time frame on these.
I have learned however if plans fall below certain funding levels, an excise tax will be levied against the company. I think I interpreted it to be 10% of the shortfall amount, so at least there is some penalty. But the penalty may not be as bad as having to pay thousands of employees who are let go the money they are owed from their pensions. I will be trying to find out more. Thanks for your help.
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Post by Kevin on Sept 22, 2008 23:44:09 GMT -6
I work for a pension consulting firm.
The mortality table and interest rate basis used for calculating lump sums has been mandated by 417(e) for a long time, even prior to PPA. It used to be GATT2003 and pegged at the 30-yr treasury rate for a certain month, so it would always vary each year. Since the interest always varied, so did the value of a lump sum. Every 5-8 years the mortality table was also updated to reflect current mortality trends. For example, in 1995 we used GATT1995, then in 2003 we used GATT2003. Now, along with PPA the mortality table was updated again, which reflects the best estimate of mortality now. Since people now live longer, and since corporate bond interest rates are higher this year than the treasury rates last year, lump sums have gone down in value. This was not meant to be a trick, but simply the best estimate of the value of a lump sum.
Also, companies are now punished for not having their pensions funded to a certain level. Below certain levels they are not allowed to pay lump sums. This is in order to avoid paying out large amounts all at once which would cause the pension funded status to fall in worse shape -- besides what company in their right mind really wants to tell their employees that they can't get lump sums -- believe me, all the companies I work for are putting in extra money and planning ahead in order to avoid that consequence.
Other punishments include freezing benefit accruals, etc. -- If the company can't afford to fund the pension to a reasonable level now, then they shouldn't be able to promise more benefits. They need to take care of their obligations now before they continue falling further behind. Believe me, companies really do want to avoid this -- it makes employees mad.
That's a little of the reasoning that I see behind all these laws. There's a lot I don't understand yet (these are still pretty new and I'm learning them as I go)... but overall, I think it is a big improvement over the old laws. It used to be that companies could promise more and more benefits without even being able to afford the benefits people had already earned. This is making it a lot more strict -- either pay or stop playing the game. Also, the law seems complicated now (and it is), but man alive was it worse before. PPA actually simplified things a ton, which makes my job easier. Pretty pathetic that we call this "simple" huh? Yep.
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Post by unlawflcombatnt on Sept 23, 2008 1:52:59 GMT -6
Kevin,
Thanks for your input.
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Post by hobbyjeep on Oct 8, 2008 4:46:33 GMT -6
I'm a salaried employee of large auto mfg, and fully vested with 30 + years. Ive been offered an early retirement at 56 years old. Here is my question... Ive been told our pension is "fully funded", and while my desire is to work 4 more years at this company, I'm wondering (from a pension security issue) if I would my pension would be better protected if I were already retired and drawing a pension payment, it the company filed for bankruptcy? Saying it another way... if I retired today and started to get a retirement check, would I have a greater opportunity to collect my retirement than it I were working at the time of bankruptcy filing and tried to retire in a few years???
thanks
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Post by graybeard on Oct 8, 2008 7:17:26 GMT -6
Welcome to a great Forum, HobbyJeep.
I don't know the answer to your bankruptcy question, but I would retire now, regardless. The longer you wait, the more chance they have to reduce your pension.
I retired from a strong company as soon as I became eligible at age 60. Once you become eligible for a pension, you are working for half pay. If the company told you they were cutting your salary in half, would you not be angry? That's what you're getting. Do you have a skill or hobby that's in demand?
Aside from the bankruptcy question, is there something you would rather do with your time than work at your old job? I've stayed with the aviation industry, and work part time "consulting" for double my old salary. It's about the best of both worlds.
Actuarial experts report that the younger you retire, the longer you will live.
My pension has no adjustment for inflation, so it's worth about half what it was 8 years ago. I depend on my rollover IRA, which I've not handled as smartly as I could have, in spite paying attention to economy and financials for the first time, and participating in this Forum.
GB
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Post by judes on Oct 8, 2008 19:03:29 GMT -6
yes thanks for your insight on pensions Kevin. And to hobbyjeeps question, my understanding is if a company turns it's pension over to the pbgc in a bankruptcy, even retirees who have been drawing on their pensions all along also lose out. I believe that is what Steve Miller and Wilbur Ross did with the steel companies they pillaged. Even retirees lost their pensions, of course they got something from the pbgc, but it usually is not much compared to what you were promised. But not all companies that file bankruptcy turn to the pbgc, but they will most likely freeze them, so you can never accrue the full amount, or in some cases like mine, if the company doesn't fully fund the pension you won't even be able to cash out what you are owed in a lump sum.
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