AUSWR
The Association of U S West Retirees
 

 

 

Nest Egg Cracked?
Can you count on your pension? Here's a survey that can help you find out.
By Pamela Yip, Dallas Morning News
From the St Paul Pioneer Press
Wednesday, March 22, 2006

How do you gauge the strength of your traditional defined-benefit pension plan and the chances of your pension being cut back?

There are factors you should look at to assess your risk, and our nonscientific scorecard can help.

You'll find a different set of questions depending on whether you work for a private company or for the government.

Score yourself as directed; the higher your score, the greater your risk.

QUESTIONS FOR PRIVATE-SECTOR WORKERS:

1. Are you still working or are you retired and already receiving benefits?

If you're still working, you get 1 point on the theory that retirees already receiving benefits are less likely to see an interruption or sudden change in their benefits.  They're still vulnerable to a loss or reduction of retiree health benefits, but so are you.

Also give yourself another point if your accrued monthly benefit exceeds the amount that the federal Pension Benefit Guaranty Corp. will guarantee if your employer folds or has financial difficulties.

2. If you're retired, have you seen significant changes in your pension or health care benefits?

If changes occurred once every 10 years, give yourself 1 point. If they've occurred more than once in a decade, you get 2 points.

3. Have your pension benefits been negotiated as part of a union contract?

If not, you get 1 point. You're more vulnerable because your benefits are more easily eliminated and aren't protected by a collective bargaining agreement.

4. Are you in a low-margin, cyclical industry, such as airlines, or a more stable industry, such as consumer staples?

If you work in the first category, add 1 point on the theory that in the next economic downturn, your company and therefore your pension, may suffer.

5. Is your company's pension currently underfunded?

If yes, you get 1 point. When a pension plan is underfunded, its pension liabilities exceed its assets.

Companies may decide to freeze an underfunded pension plan, meaning workers stop earning future benefits.

"The chances of them deciding to do that increase if the plan is seriously underfunded," says Rick Davenport, an actuary and principal at Deloitte Consulting LLP in Irving, Texas.

You can find out whether your pension is underfunded by looking at the Internal Revenue Service's Form 5500, Annual Return/Report of Employee Benefit Plan, which you can obtain from your company or at
www.freeerisa.com.

Divide the current value of assets by the accrued liability, and that will give you the funding percentage of the pension plan.

If your plan is 90 percent funded or higher, it's in great shape. If it's 70 percent funded or less, that's a red flag.

6. Has your company already started cutting back on benefits, such as health care and retirement, or has it recently established a 401(k) savings plan?

If yes, you get 1 point because your employer may be on the path to freezing your defined-benefit pension plan and replacing it with a 401(k) savings plan.

Many companies have announced they're either doing away with or cutting back on their traditional defined-benefit pensions in favor of defined-contribution plans, such as 401(k)s.

Add another point if your employer has converted a traditional defined-benefit plan to a "cash balance" defined-benefit plan.

7. Is your company currently in bankruptcy?

If yes, you get 2 points, as these companies almost always change the defined-benefit pension plan.

IF YOU'RE A PUBLIC-SECTOR WORKER:

1. Is your plan underfunded?

If yes, you get 1 point.

You can find this out by looking at the plan's annual financial report or newsletters the plan sends to its members.

Before you panic, find out how the government entity is responding to its underfunded status.

2. Are you still working, or are you retired and already receiving benefits?

If you work, you get 1 point on the theory that those already receiving retiree benefits are less likely to see sudden interruptions in their benefits. Public-sector pensions have a variety of legal protections under the U.S. Constitution, state constitutions and state legislation.

3. Have your elected officials increased benefits without providing new funding?

If yes, you get 1 point.

4. Have your elected officials delayed pension contributions in order to spend on other programs and avoid tax increases?

If yes, you get 2 points.

5. Is the government entity you work for in an area where the population is growing or decreasing?

You get 1 point if the population is declining because that shrinks the tax base.

SCORING

If you got:

0 or 1 point:

You're in fairly good shape as far as your pension goes, but your pension and Social Security benefits alone are unlikely to sustain you during retirement. You should have other savings, particularly if you need to purchase health insurance to supplement Medicare.

2 points:

Talk to a financial adviser about retirement-savings options and save more. You should be doing this anyway.

3 points:

Be concerned about your pension's future and save a lot more.

4 to 7 points:

You should have been checking to see whether you're on track in your retirement savings before you got to this dire point

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