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Subject:  Re: Lump Sum vs Pension Annuity Date:  3/22/2011  1:56 PM
Author:  ptheland Number:  68684 of 88077

Genereally, pension funds are still considered assets of the corporation, and can be lost in a BK,

I don't think that has been correct since ERISA was enacted back in the 1970s.

Since then, pension funds are typically held in a separate trust for the benefit of the employees earning pension benefits. Those funds are not normally available to creditors in a bankruptcy.

However, a lot of those pension funds are underfunded - they don't have enough in assets to pay the benefits already earned. Companies can hide this for a while by paying in to the pension fund to keep the funds from running out of money and making some outrageous assumptions about what the fund can earn on its assets. But if the company goes belly up, there isn't enough money in the pension fund to continue paying retirees. So the pension fund becomes a general creditor of the company for the unfunded benefits, which is a death blow to the fund's ability to survive.

That's when the PBGC steps in, takes over the plan, and continues paying retirees - but generally pays them less than they were getting.

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