“Pensions Safe For Now, But Will Restructuring Be A Lasting Legacy?” asks Ted Evanoff of the Indianapolis Star. “Facing a $20 billion hole in its pension funds, General Motors could return to bankruptcy court in a few years wrangling over the future of something nearly 100,000 Indiana residents depend on: a GM pension,” he adds.
If the GM story is spooking you about your own employer’s pension fund, Sarah Mox of Money Magazine is more encouraging about pension benefits in general. “Pension benefits already earned are guaranteed…so employers must cover their plans’ deficits.” Mox quotes an executive of the Employee Research Institute who remarks, “A company can dip into cash reserves to fund its pension. If there are no reserves, the firm must cut costs.” Even if you lose your job because your employer goes under, Mox goes on to say, you’ll still get checks in retirement through the Pension Benefit Guarantee Corporation, a federal insurance program.
ConsumerBoomer.com correctly explains that “when a company goes bankrupt they can reorganize and try to stay in business by reducing costs and attracting new investors, or they can liquidate. In either case, the pension plan is usually terminated, and that’s when the PBGC takes over.
Remember, too, just as in an individual bankruptcy, in a corporate bankruptcy, pension assets can’t be touched by creditors to pay off debt.
While my own Indiana bankruptcy law practice deals with individuals and small businesses, not with mega-corporations such as GM, corporate bankruptcies undoubtedly end up affecting my clients.
As companies reorganize, there is usually downsizing taking place. Job loss continues to be one of the three major causes of personal bankruptcy. With job loss often comes the loss of medical benefits. The rising number of medical bankruptcies is one of the “fall-outs” of corporate bankruptcy.
At least there’s one quite encouraging statistic, according to ConsumerBoomer.com. 84% of retirees get their full pension even after their company filed a corporate bankruptcy.