Pension Cuts Put Focus on Other Saving MethodsJohnathan Douglas
Your pension is a vital part of your long-term planning, and it’s essential that you take into account accurate forecasts. Pension benefits for some individuals have been recently cut in a trend that seems to be impacting numerous organizations across the nation. This poses worrying problems for those who have relied on company or public pensions to supplement their income when they retire, and it illustrates the dangers of relying too heavily on any one income or investment stream.
Major Cuts Associated with Funding Shortfall
The pension plans in question are meant to be funded by employee and employer contributions, but the payments aren’t always enough to account for the inevitable shortfall that occurs as pensioners begin drawing benefits. An employer has to keep paying into a plan to support ongoing funding, and that isn’t always what happens. Companies may close or experience financial hardships in the future, become unable to pay into the plan appropriately, and put current and future pensioners at risk.
This is what happened to a number of retirees who had been employed by the City of Loyalton. Even though the city had fully paid its bills, its plans were still only 45 percent funded, compared to CalPERS general funds, which are around 65 percent funded. A similar situation arose with the East San Gabriel Valley Human Services consortium. The consortium failed to pay approximately $400,000 due to loss of contracts and business financial woes, and the plan was terminated. In Cleveland, OH, the Iron Workers Local 17 received Treasury Department approval to make cuts, resulting in lower payouts for pensioners. A similar issue arose with the Central States Teamsters pension plan, although those cuts were rejected in 2016.
Lack of Pension Funds Are a Problem for Retirees
The unfortunate funding situations contributing to all of these pension cuts is something that could happen — and has happened — with other pensions, bringing to light the need for individuals to protect their own future. While employer retirement and pension plans are a valuable benefit, relying solely on another organization — whether it’s the government or a private entity — for financial stability in later years is a mistake.
It’s vital that employees in all phases of life seek out other savings and investment options so they have a backup in place should their pension plan fail to materialize in its entirety. One way to do this is to set up an individual IRA so you can save toward retirement. Core to any retirement savings plan is gold, which helps to hedge against sudden market upsets and inflationary pressures so you can be assured of your income, even if a major provider fails to make good on their promises.