Your Company's Fund Is Bruised, but Don't Worry

By Nancy Trejos
Washington Post Staff Writer
Sunday, January 11, 2009

The miserable stock market has wreaked havoc not only on your personal portfolio but also on your company's pension fund.

The pension plans of the companies in the Standard and Poor's 500-stock index were underfunded by about $362 billion in 2008, according to David Zion, an analyst at Credit Suisse. Of the 500 companies in the index, 360 had plans that were underfunded.

Are the weakened pension plans yet another reason to fret about your financial future? If the retirement experts who track the numbers are right, the answer is no. Your pension is most likely still better off than your 401(k) account.

Both 401(k)s, which are managed by individual workers, and pensions, which are managed by plan administrators, have exposure to the stock market. But if your 401(k) loses value, which many have in the past year, you have to take the loss and hope that the market will recover over time.

If your pension loses its value, you are covered in a number of ways, said Alan Glickstein, retirement consultant for the consulting firm Watson Wyatt Worldwide.

If a plan is underfunded, Glickstein said, "the benefit that's been earned to date is protected."

That said, a company can freeze a pension, which means some or all of the employees covered stop earning some or all of their benefits. Lately, more and more companies have been doing that.

If your company goes bankrupt, most plans are covered by the government-funded Pension Benefit Guaranty Corporation. Check with your plan administrator to make sure your plan is among them.

When the PBGC takes over a pension plan, it guarantees individual benefits up to a certain limit, which depends on when the worker retired and other factors. If you are under a single-employer pension plan, which most pensioned workers are, you could receive up to $51,750 if your plan was terminated in 2008 and you were 65. If you are under a multi-employer pension plan, which typically combines employers around a specific trade such as plumbing, you would get less coverage. Because multi-employer plans have so many different contributing employers, the bankruptcy of one company is unlikely to disrupt the entire pension plan, said Rebecca Davis, staff attorney at the Pension Rights Center.

"It may be quite likely that you work for someone that has an underfunded pension plan, but if I was in that situation, would that worry me? Not as long as I was under that maximum annual guarantee of the PBGC. The vast majority of people are," said Jack L. VanDerhei, research director for the Employee Benefit Research Institute.

Finding out whether your pension is underfunded isn't hard but takes a little digging. If you work for a publicly traded company, you can look at your employer's annual report, also known as a 10-K, which it is required to file with the Securities and Exchange Commission. Look for a line that gives the company's benefit obligation and another that lists the plan's assets. Let's say the assets amount to $90 million and the obligation is $100 million. That means your pension is 90 percent funded.

Next you can look at a financial report called a Form 5500 that private pension plans are required to file each year with the federal government. As a pension participant, you have the legal right to request the most recent Form 5500 from your plan administrator. You can also find a less recent copy of the Form 5500 on a Web site called Look at Schedule B of the form. There will be a line item showing the current value of assets and another showing the total benefits. If the benefits are greater than the assets, your plan is underfunded.

The problem with this form, however, is that companies are not required to turn it in until about 10 months after the end of the year, said R. Evan Inglis, chief actuary for strategic retirement consulting at Vanguard. "It's the best information and the most complete information, but it is going to be a year old," he said.

There is another option. Starting with the 2008 plan year, the Pension Protection Act will require plan administrators to send participants an annual funding notice within 120 days of the close of the year. But Glickstein pointed out that the Department of Labor has not yet fleshed out the exact format and content.

What can you do if your plan is underfunded? You just have to hope that the market recovers, retirement experts said. But you can cushion your retirement savings in other ways, financial advisers said.

Continue contributing as much as you can to your 401(k) and Individual Retirement Account, even if they, too, have been bruised by the market turmoil, said Bruce K. Sneed, president of BK Sneed Financial Planning in Woodbridge. With companies increasingly freezing their pensions, you might have no other choice.

Cut back on unnecessary spending, and make sure you have an emergency fund. Finally, be prepared to generate more income. Yes, that means be ready to work longer.

"I think this concept of retiring at 65, that paradigm has shifted," Sneed said. "People have to think in terms of taking care of themselves so that they have the health to work until maybe 72, maybe 75."

© 2009 The Washington Post Company