Q: MyÂ company’sÂ traditional pension plan was one of the reasons I took a job there. I like the idea of having a guaranteed paycheck in retirement, regardless of how the markets are doing or how much I’ve managed to put aside.
But now our company is being put on the block, and none of the potential buyers seems to have a traditional pension plan. Should I and my co-workers be worried?
A: In a word, yes. Few corporations that don’t already offer pensions want to take on the hassles and expense of funding them.
A traditional pension promises a set payment to retired workers for as long as they live. These plans are costly, and companies are increasingly phasing them out or, in some cases, switching to cash-balance plans that are somewhat akin to 401(k) retirement accounts.
The buyer of your company could take one of several courses. The first is to “freeze” the pension, which means you wouldn’t lose the benefits you’ve accrued but you wouldn’t earn any more. The company would continue to administer the plan and arrange for you to get your retirement payment.
If the company decides to institute a cash-balance plan, the value of your pension holdings would be transferred into the plan, but the rate at which you accrue future benefits could change.
More radically, the buyer might simply terminate the plan and eitherÂ buyÂ you an annuity that represents the benefits you’ve accrued or simply pay those benefits to you in a lump sum.
If the plan doesn’t have enough money to pay promised benefits, the buyer could turn it over to the Pension Benefit Guaranty Corp., the quasi- government agency that runs failed plans. Again, you wouldn’t accrue new benefits, and it’s possible you could lose some if you’re a highly paid worker close to retirement.
The PBGC caps benefits at $29,649 annually if you retire at 60 or $45,614 if you retire at 65.
Your chances of persuading a buyer to continue the plan may be low, but you can try making the argument that pensions attract smart, older workers who understand their value, said pension expert Steve Vernon, author of “Live Long and Prosper: Invest in Your Happiness, Health and Wealth for Retirement and Beyond.”
You’d be smart, though, to step up your efforts to save on your own. As rapidly as traditional pensions are disappearing, it makes sense for almost every worker to have at least something put aside for his or her own retirement.