Are you receiving or do you hope to receive an old-fashioned defined benefit pension? If so, some good retirement planning news was released Tuesday. The Pension Benefit Guarantee Corp. announced it raised the maximum amount of pensions it will guarantee.
The PBGC, a quasi-government organization financed by the corporation that offer pensions, guarantees that even if the company from which you earned your pension goes belly-up, you'll continue to get your monthly pension check throughout your retirement.
The maximum guaranteed benefit for a 65-year-old is $57,500, up from $56,000 in 2012. The increase isn't retroactive. Some retirees actually receive more than the maximum guarantee, mostly because they retired later than age 65. According to the PBGC, about 85 percent of retirees who get their pension from PBGC receive their entire earned benefit.
This year, the PBGC has paid nearly $5.5 billion in benefits to 887,000 retirees. The organization is running a $34 billion deficit. Earlier this year, it called on Congress to change how it sets the premiums companies pay to provide the guarantee, giving the organization more leverage to encourage companies to fully fund pensions.
Among the workers whose pensions are likely to be bailed out by the PBGC are some of the employees who formerly worked for Hostess Brands, which shut its doors after its unionized workforce threatened to strike earlier this month. "PBGC exists to safeguard retirement security in uncertain times, and that's what we'll do for the 2,300 men and women in Hostess' single-employer plan if the company liquidates. The plan is underfunded by about $55 million," said J. Jioni Palmer, director of communications for the PBGC, in a statement.
If you are faced with a decision to choose between an annuity plan and taking a lump sum, consider the PBGC guarantee. Either way you decide to go, you take a risk. Choose the lump and your investments could fail. Take the company-supplied annuity and the company could fail, leaving you dependent on the PBGC. As they say in the fine print, past performance is no indicator of future success, but for my money, the odds of the PBGC continuing to be a stable backstop are lots better than the results you'll get investing in the stock market.