Are Union Retirement Plans Guaranteed?

Private Sector Pensions

Many firms offering defined-benefit contribution plans, or pension plans, once stretched themselves financially to ensure they met the pension obligations of all their retirees. Now it is not uncommon to see reductions in pension benefit amounts for current retirees, as significant pension liabilities impede a firm's ability to function. When firms declare bankruptcy, the Pension Benefit Guaranty Corporation, PBGC, a government agency that insures private pension plans, steps in. The PBGC pays out pension benefits to employees of failed firms, but never more than workers would have been entitled to by their firm.

Public pensions are less likely to be affected by financial downturns for a number of reasons. First, public-pension liabilities are municipal liabilities. Cities and states rarely file for bankruptcy. Second, public sector unions are among the most influential in the country, and often prevail upon their local governments, not only to sustain current pension obligations, but often to make them more lucrative for their members. This generally means that municipalities either cut costs or raise taxes to pay for pension benefits. Third, a municipality's inability to pay its pension obligations can adversely affect its credit rating. Municipalities are thus compelled to fund pension obligations so as not to lose investor revenue.

Defined contribution plans, such as 401k plans, are comprised of your own money, and often an employee match; there is often a vesting period before you can receive your employer's 401k match. Those funds -- and sometimes your initial contributions -- may be held uninvested in an escrow account until you have worked at the firm for a certain length of time. After this, however, the funds in your 401k are yours. Certain unions may have contractual agreements with the firm concerning 401k matches, such as the amount of the match, but not always the case.

To ensure you can enjoy your retirement years, you should save as much as possible in your employer-sponsored plans as well as outside taxable and tax-deferred accounts. You should also work to develop sustainable secondary streams of income. The income from a rental property, a successful blog, a part-time consulting business or a hobby, may help you save more before you reach retirement age, as well as support your lifestyle after retirement.