Skip to main content
No. of Recommendations: 2
So I understand that "Defined Benefit Plans" are NOT fully protected from employer bankruptcy.

No, they are fully protected from creditors claims from bankruptcy, unlike deferred comp which has no protection. This protection, often referred to as 'Antialienation' meaning the fund's assets are not attachable by anyone except former spouses through a Qualified Domestic Relations Order, by Fed Statute. What they are limited to is insured coverage by the PBGC. This has nothing to do with the employer, plan funding or creditors.

And you're right about the American Airline bankruptcy pension crisis. The problem there were the very generous plan benefits that were so much greater than the maximum insured benefit. We had a CFP student/former pilot at Seattle U who had a $110K pension he'd been drawing on for 2 years (I thought it was from Delta...but can't remember) that was cut, if I remember his numbers right, to about $30K, and he had to pay part of his already received benefit back! I couldn't believe it! What I cannot understand is why the Airline Pilots Union allowed this to happen. Those people know what the insurance caps are and the risk the pilots were taking. They should have offered a tandom MPP or profit sharing plan holding only target date funds, as the vested balance of that plan would be fully protected from creditors and not subject to any insurance caps.

And while on the topic of pension disasters, Multi-Employer plans offered through organized labor are another crisis in process. The PBGC insurance caps on these plans is much lower than fully insured employer pension plans, and there are at last count from PlanSponsor, about 125 such union plans in various stages of severe underfunding that are expected to be taken over by PBGC within 20 years or so.

BruceM
Print the post  

Announcements

The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.