Running Head: UNDERFUNDED PENSION PLANS

Underfunded Pension Plans: A Serious Problem Maria Delgado Melissa Mendoza California State University of San Bernardino PA-463 Govt Budgeting Dr. Alexandru Roman March 9, 2014

Running Head: UNDERFUNDED PENSION PLANS Introduction As Americans become older, they start to think about retirement. Some know exactly when they will retire and others are not confident and may feel stressed and anxious as they approach retirement. Many Americans retire by the age of 65 years old and depend on their social security benefits, and others may depend on benefits accumulated through pension plans for retirement. Regrettably, social security benefits and private pension plans wont be around for too long. For this reason, planning and preparation in early adult life is very important. A retirement pension plan is a specific amount of money that is compensated to an employee from a company at the time of retirement. A pension plan can be funded by employer contributions, called defined benefit plans or they may be funded by employee contributions, called defined contribution benefit plans. Some factors according to the IRS that may affect an

individuals retirement pension plan can occur when an employer terminates an existing pension plan for reasons such as bankruptcy, voluntary termination, changes or converts to another plan, or a business is sold or merges together with another company. Another issue affecting retirement may be the economic state of the market place (IRS, 2014). In recent times, retirement has become devastating for many Americans. Unfortunately, the issue is that many private pension plans are underfunded in our nation, and this problem is increasing throughout the United States, leading many companies to file for bankruptcy because they cannot pay pension benefits promised to employees. According to Zeiler (2013), the federal government as well as unions and many other employers have come up with solutions to resolve this overwhelming problem. Sadly, the solution is to cut employee pension benefits and will affect both existing and future retirees. Reducing and cutting benefits eliminates any agreements that established under (ERISA) the Employee Retirement Income Security Act that was

Running Head: UNDERFUNDED PENSION PLANS

established in 1974, this act has protected millions of hard working Americans and their families who are entitled to these benefits. Future Americans entitled to pension benefits will be affected tremendously. Research by Zeiler (2013), supports that 10 million Americans are currently affected by underfunded pension plans (Zeiler, 2013). It is frightening to think about the future of retirement and what so many Americans thought would be promising and happy golden years is turning into a nightmare for many. The stress of financial burdens, managing payments, and