Pension Plans Offer Security Amid Storm Pummeling 401(k)s

Workers with traditional pension plans have plenty of reason to rejoice these days.

Contrary to headlines screaming doom and gloom in the business world, these plans are generally doing pretty well, experts say.

That's because, unlike their more trendy cousin, the 401(k) plan, old-fashioned pension plans are overseen and insured by various branches of the government.

The only problem is that you may have to take our word for it that everything is OK.

The fact is, pension plans are so complicated, it can be hard for any employee — and for most professionals — to decipher the details.

"The accountants, the actuaries and the stock analysts can't figure this stuff out, never mind the average person," said David Cohen, an attorney and pension expert at the firm of Schulte, Roth and Zabel in New York.

It is a marked contrast with a 401(k) plan, where the precise value of your holdings is painfully obvious any time you check your individual account.

"The biggest thing behind pension plans is they are insured," Cohen said. "So the fact you may not be able to figure out what is going on is not necessarily of great significance."

A traditional pension refers to plans in which regular contributions are made by an employer, who assumes responsibility to pay a specific benefit, say half your salary, when you retire, typically at age 65.

By contrast, a 401(k) plan typically refers to a set amount of money put aside each payday by an employer and/or an employee, with the employee assuming responsibility for investing the funds, which often go to stocks.

The value of these 401(k) funds has raced up and down with the stock market, causing anxiety for countless workers preparing to retire, not to the mention the poor souls at Enron who saw their retirement funds lose virtually all their value because they were invested in the company's stock.

In recent years, 401(k) plans have gotten all the attention, as the number of plans and the assets swelled.

But traditional pension plans still account for about 17 percent of retirement funds, compared with 20 percent for 401(k) plans, and total assets hit $1.8 trillion last year, according to the Employee Benefit Research Institute.

If you're wondering about your own pension plan, here are a few things to keep in mind.

• Remember, you are not alone.

Traditional pension plans are closely monitored by the Internal Revenue Service and the U.S. Department of Labor, and insured by the Pension Benefit Guaranty Corp., a unit of the government.

These days, the corporation guarantees yearly pensions up to about $42,000, which covers the vast majority of pensions. Pensions for higher-paid executives are generally not included, for these fall outside the traditional pension system.

Then there is the pledge of your company.

"The biggest thing about the health of the plan is the health of the company," Cohen said. "If the company is healthy, the plan will do fine."

One potential caveat: Pension plans for some professional organizations may not be covered by the Pension Benefit Guaranty Corp.

• You can get involved.

A good first step for those who want to know more about their pensions is to contact the human resources department at your company.

Employees are supposed to receive yearly statements about their pension plan and should have access to the details of the plan. Each year, companies file detailed reports, called 5500s, with the IRS.

Be sure to keep track of any documents you may have received from your company. This is especially important if you switch jobs and have pension benefits from different companies.

While these documents aren't likely to be easy reading, they are a start. The Web site of the U.S. Department of Labor (www.dol.gov) is also a good resource.

"They are probably much more complicated to look at compared with a 401(k)," said John Hotz, deputy director of the Pension Rights Center, a consumer organization based in Washington.

"But the oversight by the Department of Labor and the guaranty underlying at Pension Benefit Guaranty Corp. makes that kind of scrutiny perhaps less necessary."

• There is information out there.

If you're a glutton for punishment, plenty of information on pensions is available on the Internet.

One helpful site is www.freeerisa.com. Erisa refers to the Employee Retirement Income Security Act of 1974, the law that governs private-employee benefit plans. The data may be a bit dated, but you can easily see the assets and liabilities of your pension plan.

• Finally, don't fret.

A recent decline in the reported assets of pension funds is, in part, a function of historic low interest rates, experts say.

In essence, when rates are very low, pension funds, just like consumers, won't earn as much in interest on their savings. Plus, they will have to put aside more money to guarantee a fixed benefit than when interest rates are higher

Source: Seattle Times