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Question:


Would I lose my pension if my company went bankrupt?
-35YearsInTheGame


Answer:


Almost certainly not. If your employer has a defined-benefit plan, in which retired employees get a monthly pension based on years of service and the amount of their salary in the year or years leading up to retirement, then they are protected by the Pension Benefit Guaranty Corp., a federal agency that insures private companies’ defined-benefit plans. Retirement payments by state and municipal agencies are most likely safe, too, as pension obligations typically are guaranteed in state constitutions. As for defined-contribution plans, like a 401(k), in which employees’ retirement benefits are determined by the investment returns of the assets that they and their employers’ contributions are allocated to, they are not guaranteed by the PBGC, but the assets are kept in segregated accounts with banks, fund managers or other third parties. That makes them safe from a corporate bankruptcy or outright fraud.

Where things can go wrong, however, is when employers invest their share of the contributions in their own stock and the company goes bust. In that case, employees will come out worse for it, but their own contributions ought to be safe. A more common source of risk is from bad investment decisions by employees. No government agency can make them whole if they sink their entire retirement fund into the stock market just before a crash or into bonds that have such miserly yields that their savings won’t be able to keep up with inflation and let them live a comfortable life after they retire.

-Conrad de Aenlle



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