Retirement Basics
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retirement
Pensions decline as 401(k) plans multiply

Once upon a time, individuals worked for just one or two employers during their lifetimes.

When they quit, long-term employees were rewarded with send-off dinners, gifts -- like the traditional gold watch -- and, most valuable of all, a pension plan to help them settle into carefree retirements.

Today, many of us hopscotch from job to job. As for those traditional pension plans that employers funded and invested on behalf of their workers? They're becoming as rare as a wind-up pocket watch.

To be sure, the clock's been running out for pension plans over the past few decades, with fewer employers offering them to workers. In 1984, 24.2 million individuals were enrolled in a traditional pension. Today, that number has fallen to 11 million, according to the Employee Benefit Research Institute, or EBRI.

Effect of new law

But the demise of the pension may come faster than expected, thanks to the Pension Protection Act.

Passed in 2006, the law was designed to safeguard pensions from budget shortfalls by requiring companies to guarantee that plans were nearly or completely funded. Instead, new rules have triggered a "significant acceleration in the pace of plan freezes," according to findings released by EBRI and Mercer Human Resources Consulting.

Bruce Nordstrom of Mercer says employers are spooked by the law's potentially huge costs and investment uncertainty. "With a traditional pension plan, the risk of investing falls on the plan sponsor," says Nordstrom, referring to the employer. "If a company gets superior returns, they benefit. But if the market does poorly, they may have to contribute more to the pension plan in any given year to comply with the new law. That kind of risk is difficult to fit into a financial system like ours."

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