What is a pension "clawback" and can it affect you?

People in California who have worked for decades in order to ensure a healthy and prosperous retirement might be shocked to know that their pensions and retirement accounts might not be as safe as they had banked on. According to a recent AARP bulletin, pension "clawbacks," in which pension plan administrators go after money already guaranteed or disbursed to retirees, are becoming more common across the U.S.

One shocking story involved a 65-year-old man who had worked as a skilled construction laborer for many years, looking forward to his retirement as he installed ducts on Chicago skyscrapers in frigid conditions. He thought he had finally secured a pension that would provide a comfortable retirement, but then in 2013 he received a threatening letter demanding that he repay a portion of the benefits he had already received or face serious ongoing reductions to his pension. As a result, his pension was cut nearly in half, jeopardizing his ability to stay afloat financially.

Sadly, these kinds of stories are unfolding all over the country. As states, municipalities and private corporations all try to tighten their belt to deal with exploding pension liabilities, retirees are paying the price. Even though pensions are supposed to be contractually guaranteed, some pensioners still remain in limbo while cities like Detroit struggle on the brink of bankruptcy, which could have seriously inequitable consequences for those who depend on their pension to make ends meet.

Those with concerns about traditional pensions as part of their estate plan may want to consider diversifying their retirement asset portfolio. People who have concerns about their own retirement, as well as the financial security of their families and heirs, may want to get more information about their options.

Source: AARP Bulletin "Can They Grab Your Pension?" accessed April 20, 2015

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