Can I Count on My Pension to Be There When I Need It?

If your employer is a company that's still in business when you retire, it will make the payouts. There's a federal law called the Employee Retirement Income Security Act, or ERISA, that makes sure of that. Still, it's possible that your company might run into a financial mess that puts your defined benefit payout in jeopardy.

That's why most pensions offered by companies are part of the federal Pension Benefit Guarantee Corp. Much like the FDIC insures bank deposits if a bank fails, the PBGC will step up to the plate if a company goes out of business or declares bankruptcy, and says it doesn't have the money set aside to pay all the future benefits you expected to get when you retired. The PBGC insures the pensions of more than 44 million workers in more than 29,000 private defined benefit plans.

Now for the bad news: PBGC payouts have a maximum monthly limit. If your expected benefit was above that amount, you're out of luck. Moreover, anyone younger than 65 gets less than those amounts. You can check out the sliding payout scale at the PBGC Web site.

If you’re a public-sector employee, you're unfortunately at the mercy of your state or municipality to figure out a way to come up with more money – there is no PBGC backstop. Even more challenging, an estimated 30% or so of public-sector workers across 12 states are not part of the Social Security system. (To find out if that's you, ask your employer's benefits administrator.)

That situation makes it all the more important to get serious about saving for retirement on your own, rather than relying on your pension to cover all your income needs down the line.