By Martha M. Hamilton
Sunday, August 5, 2007

Traditional pensions are about as scarce today as pay phones, typewriters, tape decks and other detritus of the previous century.

Somewhere along the way employers figured out how to shift more of the costs of financing retirement from themselves to their workers, and there went the old-style pension along with its little advantages such as coverage for everyone in the workplace, professional investment choices and a lifetime of monthly payments.

In the words of retirement professionals, we have shifted from a D.B. (defined benefit) world to a D.C. (defined contribution) world. Instead of knowing exactly how much you will receive in retirement under a defined-benefit pension, you focus now on knowing how much you -- and sometimes your employer -- are kicking in to your defined contribution 401(k) plan. You keep your fingers crossed and hope that you've saved enough to last until you die. Or as gentler souls call it: post-retirement.

But a funny thing has happened now that we've accepted 401(k)s as the shape of retirement plans for the future. As financial experts and public policy folks thought about ways to make these plans better, they realized that some aspects of the old plans were quite attractive. The result, as J. Mark Iwry, a non-resident senior Brookings fellow and a principal in the Retirement Security Project, puts it, is "the DBeatification of the 401(k)."

Two recent trends are gaining momentum that could improve financial prospects for workers heading toward retirement. One is helping ensure that employees get themselves into a 401(k) without having to take direct action. The other provides professional investment choices, again with the worker barely having to break a sweat over it.

If you're one of the many, many workers paralyzed by the prospect of making choices about a retirement plan, these changes could help move you from non-saving to saving.

Back in the old days, if your employer had a pension, you were covered -- you didn't have to do anything to get the coverage. But that protection disappeared with the defined contribution plan. With 401(k)s, workers were allowed to decide whether to participate. According to some studies, about a third of workers eligible to invest in 401(k) plans don't do it.

So smart minds put their heads together and came up with a solution: automatic enrollment.

It may not be an exact substitute for the kind of blanket coverage the old pensions provided, but it's better than the status quo. With automatic enrollment, you can opt out, but, human nature being what it is, most people tend to stay enrolled.

But even though the idea has gained currency, employers have been slow to adopt it because of concerns that it might violate laws against garnishing wages. Last year's Pension Protection Act eliminated that concern and other potential roadblocks, which may mean that automatic enrollment will become widespread. A report last week by Putnam Investments said that a poll of advisers who work with medium and smaller companies on retirement plans found that 75 percent of the companies they advised were planning to add auto-enrollment in the next two years.

Another excellent benefit in defined benefit pensions was that experts were in charge of investing; they were responsible for making sure there would be enough money in the plan when workers retired to pay promised benefits. In 401(k) plans, you and I are charged with making our own investment decisions -- and most of us aren't experts.

When I was making my 401(k) choices, I took the time-honored path of asking my equally clueless co-workers and basing my decisions on that and past performance, although past performance, as we've all heard again and again, is no guarantee of future returns.

Many participants do the next best thing to nothing and stash their money in low-interest money market accounts or other conservative options that barely allow their savings to keep up with inflation.

Automatic enrollment can provide a possible solution -- and add a touch of expert professional help for participants. When employees are enrolled in a 401(k) they can also be automatically invested in balanced accounts. Balanced accounts are a professionally selected mix of investments designed to give participants the right levels of stocks and bonds, risk and stability. Some employers also offer life-cycle funds that become more conservative as the investor ages.

So what's on the horizon? The answer seems to be a move toward providing lifetime income through 401(k) plans by allowing participants to invest over time in an annuity, an insurance policy that provides payments until death.

Although it might benefit retirees to buy an annuity, few do. It requires the consumer to hand over what is often a large sum of money to an insurer in exchange for monthly payments for life. When you have a large sum of money in hand, it's hard to give up control of it, especially with so many people whispering in your ear that you might get better returns investing it with their help. And many consumers fear tying up their money in an insurance product when they might need it later for medical care or other expenses.

But if investing in an annuity gradually were an option for workers through their 401(k) plans, it might make annuities more attractive, said Iwry. So far, just a few insurance companies are offering such products, and probably fewer than 50 companies have adopted them, said Jody Strakosch of MetLife, whose Personal Pension Builder is offered to employers as part of retirement planning services by Merrill Lynch.

Participants whose employers offer the product can elect to contribute a certain amount each pay period to an annuity or can simply make payments when they choose to, saidStrakosch. "MetLife invests and tells you what the income stream will be in retirement. If you're 40 years old, you give us $100 today, and we'll give you $3 a month 25 years from now for the rest of your life," she said as an example.

If the approach spreads, more employees in the future could end up with monthly payments for life beyond their Social Security -- just like in the old D.B. days. If you have subjects you would like to see addressed in future columns, please e-mailhamiltonm@washpost.com.