Retirement, Squeezed

Underfunded plans, even at a healthy company, are more likely to be frozen, financial experts say. The benefits consulting firm Watson Wyatt Worldwide Inc. said that last year, 113 of the 1,000 biggest companies in the United States had frozen or terminated a pension plan or had announced plans to do so, nearly double the number in 2004 and 2003 combined.

"If it's not being funded currently, you can expect problems sooner or later," said McGrath, the Rockville financial planner. "If it's healthy, you still need to see how well prepared you'd be if the pension were frozen today, in a year, in five years. It all depends on how old the worker is."

Frozen Out

Pensions freezes can happen two ways, said Karen Ferguson, director of the Pension Rights Center, a nonprofit advocacy group. In a "soft freeze," benefits continue as usual for existing employees, but the pension is closed to new hires. In a "hard freeze," such as the one Schuback experienced at Verizon, everyone is affected.

Younger workers stand a greater chance of not getting all they were hoping to get from their pensions. But they have the advantage of having more years to work and save to make up for shortfalls under various scenarios, planners and other experts say. For example, the $223,792 drop in potential value of Schuback's pension isn't as devastating, largely because he's relatively young. And the $245,494 he is on track to get puts him way ahead of many of his peers: It's more than six times the average, $40,000, most people in their thirties have saved, according to EBRI.

Older workers are more likely to have accrued much of their pension benefits. But they will have less time to save for any shortfalls. Financial planners say this group should take full advantage of catch-up programs that allow workers over 50 to put more pretax money into 401(k)s and IRAs.

By assuming a worst-case scenario and bolstering personal savings to compensate, the worst that can happen, McGrath said, "is that you'll retire with too much money. Is that bad?"

Workers within a year or two of retirement who have worked at a company long enough to have locked in full benefits might find they can invest a bigger slice of their savings in stocks than conventional investment wisdom advises for older investors. For example, if a soon-to-retire worker has accrued a pension benefit of $50,000 a year, he might want to take a few bigger risks with other income -- investing in equities rather than bonds, for example, which could help a retiree stand a better chance of keeping up with inflation, McGrath and others said.

Those retiring should take special care when deciding whether to take a lump sum or monthly payments, experts say, because the interest rate companies can use to compute lump-sum payments can disadvantage a worker.

But no advice can help some older employees who have not locked in the full benefits of working two or three decades and did not factor in the possibility that their pensions would be curtailed. For this group, financial consultants say, a freeze or termination amounts to a pay cut. Verizon network services manager Margo Bryerton, 57, who has worked at the company for 18 years, estimated that the freeze lopped $300,000 from the retirement package she expected when she retires at 65. Now, she said, she will have to work past 65, take a second job or possibly sell her house to make up the difference.

"I based everything on faulty thinking. I assumed it would be there," she said. "I'm in that age group where I'm too young to retire but I'm too old to start over. It really is a pay cut for me."