Find out If Your Pension Benefits Are Guaranteed
Pension plans provide a source of guaranteed income, although in this case the word "guaranteed" is used loosely; there have been plenty of cases where pension plans got themselves in a financial mess and were forced to reduce benefits being paid out to existing employees. So how do you know if your pension is guaranteed?
The Safety of Your Pension
The good news; there is a form of insurance in place - an organization called the Pension Benefit Guarantee Corporation (PBGC) - set up to protect your pension benefit.
If your company participates in the PBGC, it is likely that at least a portion of your pension benefit is insured.
How Much of Your Pension Is Safe
The amount of monthly income that is insured by the PBGC has a cap. In 2016, for a pension recipient age 65, whose company was part of PBGC, and who is taking a joint life payout with 50% that would be paid to a survivor, the maximum amount of benefit that is insured is $4,510 a month.
For a single life payout, the maximum amount of insured benefit at age 65 is $5,011. If your pension benefit is greater than the cap, the excess amount is not insured. These insured amounts apply to what is called single-employer plans. For insured amounts for multi-employer plans see PBGC's Multi-Employer Plan fact sheet.
Important: If you have not yet reached age 65, your full pension benefit may not be insured even if it is less than the cap. The allowable insured amount of pension benefits are reduced for each year younger than 65 that you are, and increased by a factor for each year older than 65 that you are, with the maximum insured amount available for those age 75 or older.
You can see the exact amount of monthly payment that is insured based on your age by visiting the PBGC Maximum Monthly Guaranteed Tables.
Not All Pensions Are Insured
Private pension plans offered by large companies typically participate in PGBC, however, pension plans offered by states and city governments do not.
You are encouraged to speak with your union, plan administrator, employer, or pension plan sponsor directly to see what insurance amounts apply to your pension. You can ask them if your pension is insured by the PBGC.
How Divorce Impacts Your Pension
Regardless of a divorce, the safety of the pension is still protected by the government's efforts with the Employee Retirement Income Security Act of 1974 (ERISA) and the Pension Protection Act of 2006. However, your stake in the pension will be determined by how proficient the family lawyer was. If you are entitled to pension benefits after a divorce a qualified domestic relations order (QDRO) must be drawn up (it is a legal document) and provided to the pension plan administrator.
The QDRO is the document that legally binds the plan administrator to pay out benefits to a former spouse. Without a QDRO a pension plan cannot make the payment - regardless of what the divorce decree says.