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Subject:  Can You Count on Your Pension? Date:  1/21/2004  4:10 PM
Author:  TMFTwitty Number:  38672 of 79733

Can You Count on Your Pension?

Much of your future retirement income is in other people's hands. The amount -- and very existence -- of your Social Security benefit will depend on how the government attempts to fix the program's looming shortfalls. And if you expect a monthly pension check in your golden years, you may be in for a surprise: Poor investment returns and corporate bankruptcy have jeopardized this one-time cornerstone of retirement. In the end, you can only depend on what you can control: your personal savings.

By Robert Brokamp (TMF Bro)
January 21, 2004

We all look forward to the day when we can deposit our duffs on retirement's proverbial three-legged stool: Social Security, a pension plan, and personal savings.

But be careful: The legs of that stool aren't too sturdy.

We all know that the future of Social Security is up in the air, with baby boomers poised to put a strain on those coffers. The program just won't have enough money to cover future obligations.

Unfortunately, the same is being said of more and more traditional pension plans, a.k.a. defined-benefit plans. Last month, Standard & Poor's announced that the pensions offered by the companies in the S&P 500 are underfunded by $259 billion, up from $212 billion a year ago. The bear market of 2000-2002 and historically low interest rates have taken their toll on pension assets, and the stellar stock market of 2003 wasn't enough to compensate for the increased payments pensions will have to pay this year -- a situation that will only get worse as the baby boomers retire.

That shortfall is just for companies in the S&P 500. Nationwide, the government estimates that pensions are underfunded by $350 million.

The pension: an endangered species
Of course, an underfunded pension is better than no pension at all -- but that's the prospect facing an increasing number of workers. A recent survey by Hewitt Associates (NYSE: HEW) found that unless Congress changes the accounting rules that govern pensions, 21% of companies say they will freeze pension benefits and 17% said they won't offer defined-benefit plans to new employees.

The issue of companies getting "pension relief" is a whole other can of worms, but the fact is that fewer employers are offering defined-benefit plans. According to Hewitt, 83% of employers offered traditional pension plans in 1990. By last year, that percentage had dropped to 45%.

Even if you have a pension, there's no guarantee it'll be around when you retire. Just ask the former employees of Consolidated Freightways, US Airways (Nasdaq: UAIR), or Polaroid. After these companies went bankrupt, they could no longer pay pension benefits. Their plans -- along with the plans of 149 other companies, including, of course, Frosty Morn Meats -- were taken over by the Pension Benefit Guaranty Corporation, a federally chartered agency that essentially insures pensions.

While that sounds reassuring, benefit payments from the PBGC are often lower than what a retiree would have received had the company remained solvent. A Washington Post article from last October told the story of Melvin Schmeizer, a Bethlehem Steel employee for more than 35 years whose monthly pension dropped from $2,850 to $1,700 after the PBGC assumed