Those Vanishing Pension Plans
Wednesday - September 28, 2011
No one wants to wake up and discover that his or her pension has vanished.
For that reason there are federal laws to regulate pension planning and administration. The problem is that it’s next to impossible to formulate a plan without expert help.
Anyone with a pension should be aware of the Employee Retirement Income Security Act of 1975 (ERISA).
It is the basic law and requires that employers have written pension plan documents and adhere to certain guidelines regarding who is eligible for the employer’s plan and at what point the employer’s contribution becomes the employee’s.
This law is very tricky.
It says specifically that those in charge of the plan must control it in a responsible manner.
The Department of Labor says that the primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries.
Employers want their pension contributions be qualified or tax deductible, suggesting they adhere to the pertinent income tax codes.
Furthermore, under labor relations laws, the employer must let its union participate in the administration of the pension plans.
ERISA established the Pension Benefits Guarantee Corporation (PBCG) to oversee and insure a pension if a plan terminates without sufficient funds up to $54,000 per year for someone 65 years of age with a plan that terminated in 2009.
What this means is highincome workers could still see most of their expected pensions evaporate if their employers go bankrupt.
With all of the government laws and good intentions to protect employees’ pensions, there is a lot going on these days that challenge those good intentions.
A good example is union leaders in Detroit, who are recommending that General Motors’ 48,500 factory workers approve a new four-year contract.
Problem is the agreement includes a $5,000 signing bonus and improved profit-sharing instead of hourly pay raises for most workers.
It comes up for a vote next week.
Mind you, General Motors received a $15 billion bailout to keep it out of bankruptcy. The union leadership might want to take a quick public relationship course and not use our well-intended labor laws, and consider the employees who don’t have a lot of discretionary money to pay for another bailout for companies that are “too big to fail.”
The major concern here is that not everyone belongs to a powerful union like the United Auto Workers.
And if other smaller unions follow suit and start asking for not only protection for their pensions, but a bonus for going along with the government’s concessions and re-election rhetoric, it’s pretty obvious that the law needs to be updated.
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