U.S. backs pensions with foreign owner

Your Money

June 25, 2006|By JANET KIDD STEWART | JANET KIDD STEWART,TRIBUNE MEDIA SERVICES

What happens when a company in a foreign country owns a U.S. pension plan?

- Bernard Berg, Buffalo Grove, Ill.

Berg, 63, retired from Lucent Technologies Inc. five years ago after a 38-year engineering career that began with predecessor Western Electric Co.

His former employer agreed in April to a roughly $14 billion merger with French telecommunications provider Alcatel. Berg has been pondering what could happen to his retirement benefits if Alcatel defaults on the plan.

Lucent officials have pledged to continue the company's pension obligations after the merger.

"If the French company defaults on pension obligations or becomes bankrupt, does the PBGC still protect the defined-benefit pension plans of Americans?" Berg asks.

The short answer is yes, the Pension Benefit Guaranty Corp. insures pensions of U.S. companies, regardless of whether those companies are in turn owned by a foreign company. Unfortunately, the bigger picture isn't that simple.

If it comes to default, the agency's payments - which cap out at about $47,000 a year - can fall short of the benefits promised by companies. Even without a default, health premiums could rise sharply, as has been the case at Lucent, effectively putting a big dent in retirement income.

For others in the less-certain pension world, it pays to begin thinking about what other assets could replace those dollars if disaster strikes, said Henry Kaelber, a financial planner in Charlottesville, Va.

If you're still working, experts said, that means putting more money aside for retirement. If you're retired, it may mean adjusting your investments, or even going back to work.

"People used to think of pensions as good as gold," Kaelber said. "Unfortunately, nothing is guaranteed."

Given these increased risks, as well as the uncertain future for Social Security, Berg should rethink his retirement asset plan, said Sheryl Garrett, a financial planner in Shawnee Mission, Kan.

She recommended Berg, who has an all-stock portfolio outside the pension, put three years' worth of cash reserves into short-term instruments like money market funds and short-term bonds. It can be used for expenses without having to sell stocks in a downturn, she said.

The remainder of his investments can be heavily weighted in stocks, Garrett said.

Janet Kidd Stewart writes for Tribune Media Services.

Have a retirement question? E-mail yourmoney@tribune.com, or via mail at Your Money, Chicago Tribune, Room 400, 435 N. Michigan Ave., Chicago, Ill. 60611. If your letter is selected, we may include you and your question in a future column.

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