The changing outlook for pension plans

Key Points

  • Some public and private pension plans have been changing.
  • If your retirement income sources include a pension, it’s important to check in with your advisor.
  • Your advisor can adjust your portfolio as needed to help you stay on track to a confident retirement.

If you rely on a pension to support your retirement income, recent news about pension-fund growth may have left you wondering what the future holds.

Modest economic growth, low interest rates and rich valuations for many stocks that comprise pension fund investments have had some economic experts reevaluating assumptions about pension fund returns. 

Because of these factors, if a pension is part of your retirement income it’s important to talk to your advisor about how these projections may affect your financial goals.

Public pension plans are falling short of expectations

Benefits that many state and local government pension plans are obligated to pay add up to more than the plans may have available. Shortfalls could result in pension cuts for retirees, tax increases or cuts in other government-funded programs that would serve to cover the funding imbalance.

In addition, according to the National Association of State Retirement Administrators, “The sustained period of low interest rates since 2009 has caused many public pension plans to re-evaluate their long-term expected investment returns, leading to an unprecedented number of reductions in plan investment return assumptions.”1

Corporate pension plans are faring somewhat better

While better returns lately have helped strengthen corporate pension plans, some major corporations have been “de-risking” their pension programs with strategies to reduce the number of participants, as a way to lessen pension liability. If you are a participant in a private sector pension plan and are not yet receiving lifetime income payments, you might receive an offer to take a lump sum distribution. Advance preparation with your advisor is crucial, because the decision window is usually short.

We can help

If a pension will support most or part of your retirement income, your advisor can help you adjust to the changing pension landscape. Contact your advisor to set up a discussion.