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Make retirement your business

By Barbara Whelehan · Bankrate.com
Saturday, February 2, 2013
Posted: 6 am ET

This week, the vulnerability of traditional pension plans has dominated retirement news.

Illinois put off a bond auction Wednesday due to concerns about the state's unresolved $96 billion pension deficit, which caused its credit rating to be downgraded by Standard & Poor's and Moody's in recent days. The state's pension deficit climbs about $17 million a day, according to estimates by Illinois Gov. Patrick Quinn.

While Illinois' pension deficit is the worst in the country, the pension deficit problem is pervasive among many states, which share a collective funding gap of nearly $1 trillion, according to researchers at Boston College.

And the problem is not confined to state plans. Another report released this week found that pension plans offered by local governments are less funded than state-run plans, according to 2011 data analyzed by the Center for State & Local Government Excellence.

Government plans may be in trouble, but private pension plans aren't faring much better. Last week, Congress was notified that the multiemployer pension plan program is in trouble, with a deficit of $5.2 billion as of fiscal year 2012. The program has assets of $1.8 billion and liabilities of $7 billion, according to the Pension Benefit Guaranty Corporation, or PBGC, the government agency that comes to the rescue when private pension plans fail.

Multiemployer pensions cover about 10 million U.S. workers and retirees in the transportation, mining and other industries that maintain these plans under collective-bargaining agreements, according to The Wall Street Journal. These are different from single-employer plans that cover nearly 33 million workers and retirees. According to PBGC's 2012 annual report, the single-employer plans suffered a net loss of $5.88 billion in the 2012 fiscal year, increasing the program's deficit to $29.14 billion -- a record high.

The red ink is splattered all over these pension plans, which are supposed to guarantee retirees a steady paycheck for life.

Meanwhile, defined contribution plans -- those that require individuals to do their own retirement planning -- need improvement, too. We are underfunding them.

On Thursday, retirement industry representatives from TIAA-CREF, Fidelity Investments, Aetna and other organizations testified before the U.S. Senate Committee on Health, Education, Labor & Pensions, or HELP, to offer ideas of what can be done to enhance 401(k)s, individual retirement accounts and other such plans that have been steadily overtaking old-fashioned pension plans in both the private and public sectors. These financial experts expressed concern about Americans' lack of retirement preparedness and offered solutions, such as upping the standard deferral rate from 3 percent to 6 percent in plans that offer an automated deferral feature, and providing tools to help employees make better retirement decisions.

The industry reps made good suggestions that would benefit the likes of you and me, but let's not kid ourselves. They're mainly focused on how to gain assets and market share. Business interests are top of mind.

Make it your business to get involved in your own retirement planning. Override the deferral rate, and put 10 percent or 15 percent of your pay into your workplace plan. If your employer doesn't offer a plan, open an IRA, and invest the maximum amount each year. This year, the most you can contribute is $5,500 if you're younger than 50, $6,500 for those 50 and up.

It's clear that we can't count on our government or employers to take care of this important task for us.

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Follow me on Twitter @BWhelehan.

Barbara Whelehan is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It is available at Amazon, Barnes & Noble, iBookstore and other e-book retailers.

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