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Financial Education for Everyone

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Protecting your pension

November 14, 2008

If your employer provides a traditional pension plan you are part of a vanishing breed. According to the Department of Labor, only about 20 percent of private sector workers are covered by pensions today, about half the level of 30 years ago.

Many companies seeking to trim expenses – not to mention those undergoing bankruptcy – have frozen pension benefits or terminated their plans outright. Although many such companies end up enriching their 401(k) plans, if employees choose not to participate they'll lose out on matching contributions. Fortunately, the 2006 Pension Protection Act encourages companies to automatically enroll eligible employees in 401(k) plans, likely boosting participation rates.

Younger workers probably still have time to amend their retirement saving strategies, but people closer to retirement may feel the pinch if pension benefits they've counted on come up short. Either scenario highlights the importance of closely managing your own retirement savings and not depending on others to do so.

Consider these pension-related issues when planning for your retirement income:

Understand the government's involvement. The vast majority of pension plans are insured by the government-created Pension Benefit Guaranty Corporation (PBGC), which guarantees payment of vested benefits in participating plans, up to legal limits set annually by Congress. A few PBGC facts:

  • Participating companies fund PBGC through yearly premiums.
  • Absorbing several huge failed plans in recent years has saddled PBGC with a multi-billion-dollar deficit.
  • The maximum annual benefit paid by PBGC to participants retiring at age 65 from underfunded plans terminating in 2009 is $54,000 (it's higher for those retiring after 65; lower for those retiring earlier). This likely means all but the most highly-paid employees covered by failed plans should receive their full benefit amount.

Track down old pensions. Many people have had numerous employers. If you worked several years for a company that provided a pension at that time, you may be eligible for a pension benefit. But if you've moved since then or your former employer merged or went out of business, the plan (or the PBGC, if it's now the plan's custodian) could have a hard time locating you.

To track down previous employers or successor companies, try checking with: a reference librarian to search corporate name changes; former coworkers; unions you belonged to; or a library, historical society or chamber of commerce where the company operated. Other helpful organizations include PBGC itself (www.pbgc.gov), PensionHelp America (www.pensionhelp.org), and the Department of Labor's Employee Benefits Security Administration (www.dol.gov/ebsa).

Know your plan. Your pension plan administrator should provide a summary plan description that explains key information like vesting requirements, pension calculation formulas and payment options. You should also receive an annual statement with updated benefit estimates. Carefully review these documents for accuracy, especially the income level used to calculate your benefit. If you don't understand something, ask. If you haven't received these documents, contact your current or former employer's benefits department.

Boost your own retirement savings. Rather than relying on Social Security and pension benefits alone, save as much as you can on your own, whether through a 401(k) plan, an IRA or personal savings. Good information sources on pensions and retirement planning include AARP (www.aarp.org) and Practical Money Skills for Life, a free personal financial management site sponsored by Visa Inc. (www.practicalmoneyskills.com/retirement).

Pensions can be a great source of retirement income. Just be sure you've got other resources lined up as well.


This article is intended to provide general information and should not be considered health, legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.