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A Retirement Crapshoot?

But that is not the point of Social Security. It's not a lottery ticket. Neither are employer-sponsored pensions. Instead, they are part of the social safety net that has been built up since the Depression to try to keep the elderly out of poverty.

The nation seems bent on transforming both pensions and Social Security into high-risk, high-reward systems in which the clever and the lucky thrive and the unlucky and unsophisticated are left behind.

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In 401(k)s, and presumably the proposed personal accounts in Social Security, a key element is continuous investing. After you've picked your investments and found the money to invest, you have to keep doing it.

Sounds easy enough, that part. But suppose you are out of work for a while. Maybe you go back to school, or stay home with the kids, or are sick for a protracted period of time. Long periods in which you don't contribute to an investment account, be it a k-plan or a Social Security personal account, will take a big bite out of your final total.

IBM, in fact, recognizes this, and plans to offer its 401(k)-only hires the right to buy special disability insurance that will cover the contributions a worker can't make while disabled. IBM knows of no other employer that does this, and just by offering the insurance IBM shows it recognizes a real peril. Still, the insurance will be another cost to workers, and presumably some won't buy it.

By contrast, if you work 40 quarters in a job covered by Social Security, you're in. Not for as much as you might get working a full career, but it's a significant benefit nonetheless. Plus there are spousal and survivor benefits that help people, mostly women, who work only briefly or not at all outside the home.

How are personal accounts going to work for them? Or for single people with intermittent work histories?

Traditional pensions offer survivor benefits, and combined with Social Security they can see a widow through.

But investment accounts are another matter. Today, if your 401(k) goes south, at least you still have Social Security. But if Social Security works the same way your k-plan does, what security do you have?

These are questions that need to be addressed. If society shifts too much risk to workers and their families, and if those workers' bets don't pay off . . . guess what? That risk goes right back on society, or at least the remaining taxpayers, as impoverished elderly flock to the polls to elect someone who promises to provide for them.

And if such leaders adopt tax rates and other policies that in the long run stifle initiative at IBM and in Silicon Valley and on Texas ranches, well, remember that the elderly above all understand Lord Keynes's dictum, "In the long run we are all dead."

The Pension Benefit Guaranty Corp., the government's pension insurance agency, said last week that the maximum annual pension that will be covered for workers in plans that terminate next year will be $45,614. That's for workers who retire at age 65. The amount is higher for workers who retire at a later age and lower for those who retire earlier or elect survivor benefits. The agency noted that if a pension plan terminates next year but a participant does not begin collecting benefits until later, the 2005 maximum still applies.

The experts at Warren, Gorham & Lamont/RIA's Practical Tax Strategies, a journal for tax professionals, are happy to remind us all that there are no tax consequences for workers who get a Christmas turkey, ham or the like from their employer. Indeed, the employer can even deduct such traditional gifts.

But, they caution, if the employer gives vouchers, coupons or something similar, it's a different story.

In a recent ruling, the Internal Revenue Service held that if an employer switched from food gifts to coupons redeemable for $35 worth of groceries, the employees would be taxed. The tax agency made this determination even though the coupons were redeemable only for groceries and only at only certain stores during specified dates. The coupons would have required the worker to endorse them, and any value not used up in a single shopping trip would be lost.

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