Pension Solvency

Crystal asks how secure she should feel in the solvency of her pension. Dave thinks it depends.

QUESTION: Crystal on Facebook asks how secure she should feel in the solvency of her pension. Dave thinks it depends.

ANSWER: That would depend on your pension, Crystal. You need to look into it. Some of the pensions are very well-run, very solvent and are doing a good job. Others are extremely poorly run, and you wouldn’t bet on it at all. The problem with a pension is that it is the property of the organization. If it’s a union pension, it’s not yours—it’s theirs. They just pay you out of it. If they go broke, you lose everything. If it’s a business that has the pension and they’re the owner of the pension, you’re not the owner. That’s the beauty of the 401(k). You’re the actual owner, and the business going broke or the union not managing things well or something like that doesn’t harm you. Again, some of the pensions are well-run by unions and by businesses. Some of them are horrendous. You’ve just got to look into the solvency of it. There’ll be some ratings and things.