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How healthy is your company's pension plan?

Are you relying on a traditional pension plan to see you through your retirement? If so, you'd be wise to keep an eye on your company's financial health.

Traditional pensions, or defined-benefit plans, promise retirees a certain amount of money when they retire. The benefit usually is based on categories such as years of service and salary.

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More typical today are defined-contribution plans such as 401(k)s where the amount an employee receives at retirement is based on employee and employer contributions and the returns earned by the investments. Nevertheless, millions of American workers, especially those employed by many of America's bigger corporations, are counting on old-fashioned, employer-paid pensions.

Yet it seems that every day another company is in the news because its pension is seriously under-funded. General Motors, Ford, IBM and Boeing are among the hundreds of companies faced with finding cash to pump into under-funded pension plans.

Usually, a pension plan is considered under-funded if its assets are less than 90 percent of its current liabilities.

Under-funded doesn't necessarily mean that a pension plan is in trouble. Most companies have enough assets to pay retirees' current benefits. But lousy stock market returns and low interest rates on fixed income have crippled the returns on pension investments.

A report by Merrill Lynch says that most of the 348 S&P 500 companies with defined-benefit plans have liabilities exceeding assets. As a group, the pension funds alone, excluding other benefits such as health care, are short by an estimated $184 billion to $324 billion.

Is your pension threatened?
If your company is financially healthy, it should be able to make up the shortfall once stocks and other investments start yielding healthy returns. But if your company is struggling, your full pension could be threatened.

"Corporate problems happen all year long. If it's not Ford it's someone else out there," says Gloria Della, spokeswoman for the U.S. Department of Labor. "The fact that there is a financial problem at a corporation doesn't always equate into a problem with the defined-benefit plan. You can't necessarily say, 'There goes the pension!'

"But consumers have to be a lot more educated than in the past. People didn't think about retirement plans. They knew someone was making a contribution for them and that's all that mattered. It's incumbent upon them now to monitor their plan."

Most defined-benefit plans are insured by the Pension Benefit Guaranty Corporation, a government corporation charged with making sure employees who work for a company that goes bankrupt or can no longer support the pension plan get at least the minimum benefits.

Cold comfort for long-time employees counting on much heftier checks, says Michael Kresh, a certified financial planner in Hauppauge, N.Y.

"The guarantee of the pension is only as good as the guarantee of your firm and the PBGC. If the firm is in jeopardy, compare your monthly benefit with what the PBGC plan currently guarantees and if there's a big enough gap, and in a lot of cases there would be, people who retire may end up with a lower pension than they thought and they have to fill that gap."

The maximum benefit this year that PBGC would pay someone who is 65 years old at retirement is $43,977. But if someone retires at 60, the annual maximum benefit drops to $28,500. Conversely, if a person retires at 70, the annual guarantee rises to $73,000.

-- Posted: March 17, 2003




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