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What this means is that retirees will receive their monthly checks from two insurance annuities with Prudential and MetLife.? It will show up as a single check from Prudential, but will be actually paid by both companies.? Things will look very similar to the way they do now - the amounts will be the same, But instead of the money coming from the IBM Pension fund, it will come from insurance annuity funds set up with the insurance companies.? IBM will no longer have any responsibility for the payments - now the responsibility will be with the insurance companies to properly invest and manage the annuity funds.? With the pension fund, if it became underfunded, IBM would have to add more money to it.? Now, IBM will be off the hook and it will be up to Prudential and MetLife to figure out how to cover any shortfall.

Another difference will be that the federal ) will no longer back up the pension payments should the fund get into trouble.? Today, the PBGC would cover pension payments up to about $74,000 a year for a retiree at age 65.? With the insurance annuities,the PBGC coverage is gone.? Instead, would provide coverage should the insurance company go bankrupt.? The amount of coverage depends on the state you live in, and also is based on the present value of the annuity at the time of bankruptcy, rather than the monthly (or annual) amount you receive.? This could mean that a retiree would get less than their full pension in the case of a bankruptcy.?? But before things ever get to that point, states work to transfer the responsibility for paying the annuities to other, healthy companies.? Often, they are successful in doing this and no one loses anything.

Another difference is that pension plans are not run to make a profit.? They must follow strict federal guidelines to ensure that they are able to pay all the pension liabilities.? Insurance companies are run to make a profit.? Although they are supposed to have a fiduciary responsibility to the annuity recipients, they balance that against their desire to make a profit.? Where IBM has invested the pension funds very conservatively (mostly in bonds), I expect that Prudential and MetLife will change this somewhat to get better returns by investing more in stocks and other higher risk investments.