"George Patterson" wrote in message
news:T0Wge.4970$1f5.1194@trndny01...
Mike Rapoport wrote:

It isn't supposed to require either a leap of faith or the company
remaining in business. The Company is suppose to deposit money to fund
the pension plan which is a trust with an independent board. The funds
are professionally managed and, barring catastrophe, there should be
enough to pay the promised benefits.

The problem is that the funds are typically invested in stocks and/or
bonds. If the market is doing well, the employer only has to contribute
money for relatively new employees -- employees who have been there a
while already have substantial funds, and the returns on that provide the
necessary increase. If, however, the market isn't doing well, the company
has to make continuing deposits, usually at a time in which they aren't
making very much themselves.

My former employer is typical in this regard. In early 2001, the market
was still cooking, and my former employer had the pension funds in stocks.
As the market collapsed later in the year, there was a rush to shift
everything to bonds. Then came the ENRON scandal. Congress reacted to that
by increasing the amount of equity employers had to keep in their pension
plans. That meant that companies that had pension plans suddenly had to
scrape up substantial amounts of cash to add to them at a time that the
market was forcing them to divert more and more of their income to the
plans anyway.

My company reacted in two ways. First, they laid off anyone who was close
to either a 2 year or a 5 year service anniversary (those are the dates
that pensions become partially and fully vested). That freed up a lot of
funds that could be allocated to pensions for other employees. Second,
they changed the pension plan to a "cash balance payout" plan. This works
sort of like Bush's "private account" option for Social Security. The
company pays in a certain amount into your pension. If the market does
well during your career, you'll get a big lump sum when you retire; if
not, you'll get a tiny lump sum when you retire.

George Patterson
There's plenty of room for all of God's creatures. Right next to the
mashed potatoes.

Companies aren't required to fund plans on a daily or even annual basis and
react to every decline in their investments. There is an assumed rate of
return and the company is required to fund the plans so that there will be
enough to pay benefits if the assumed rate of return is earned.

Mike
MU-2