retirement

Asset protection when your brokerage, bank or pension fails

Treasury bills and notes are protected by Uncle Sam, even if you buy them from a bank that's gone under. You'll want to get documentation from the FDIC, or from the so-called "acquiring bank" that takes over a failed institution, proving you own the security. You can then redeem the Treasury at a Federal Reserve Bank or wait for it to mature, at which point you get a check from the acquiring bank.

If this whole process makes you squeamish, you can try to keep from getting caught up in a bank failure by checking up on the health of your bank using Bankrate's Safe & Sound star ratings.

Protection for pensions 

The Pension Benefit Guarantee Corporation, or PBGC, protects pensions for 30,000 private (nongovernment) firms in the event of a bankruptcy or when a business can't continue to sponsor its plan.

It does not protect defined contribution retirement plans that employees fund, such as 401(k) or 403(b) plans. Pensions funded by smaller firms with fewer than 25 employees generally aren't covered by PBGC, either, says PBGC spokesman Marc Hopkins.

Employees can find out from their benefits department if their company is PBGC protected.

The PBGC offers coverage for basic benefits in the event an employer goes belly up or the plan fails. Basic coverage includes pension benefits at retirement age, most early retirement benefits, annuity payouts for heirs and some disability benefits.

Benefit amounts are set by Congress each year. The maximum benefit for plans that terminate in 2008 is $51,750 annually -- or $4,312.50 a month -- for someone who is age 65. Benefits are lower for early retirees.

If the PBGC took over a plan in previous years, annual payouts are smaller. For example, the annual maximum payout for a pension that folded in 2007 was $49,500, says Hopkins. Benefits are not adjusted for inflation.

PBGC also does not guarantee "extras," such as vacation pay, severance or disability benefits when a disability occurs after a pension plan goes bankrupt.

To date, 84 percent of participants received their full plan benefit, according to a PBGC study. "Airline pilots, who had richer plans, and steel companies that had 'shut down benefits' for extra funds if a factory closed -- those supplemental benefits weren't covered," Hopkins says. "We work to ensure there's no interruption of benefits."

You don't have to wait for bad news to see if your plan will be protected. Employers must provide 60 days' notice before a proposed plan termination. Meanwhile, employees always have the right to obtain information about their plan to see if it's underfunded by requesting this information in writing.

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