What about your pension, after the stock market drop?
Some of you are okay, your retirement money secure and unchanged. Others are in big trouble.
You are not affected if you're in a "defined benefit" plan. That has a fixed payment at retirement, based on your salary and years of service. If the plan's investments were decimated in the market, the company will raise its contributions to cover the loss.
But although your retirement may be safe, your current earnings may not advance as fast if the company has to make up big losses in its pension plan. Money spent doing that is not available to pay higher wages or bonuses, according to Peter Elinsky of Peat Marwick.
Also, companies increasingly resist taking the full investment risk of fixed-pension plans. Last month's crash may push more of them toward sharing the responsibility for pension savings with their employes. The coming thing: a hybrid plan, with a fixed base and a flexible top, to which the employee is expected to contribute.
Employes in "defined contribution" plans are those whose retirements may, indeed, be at risk. Here, you have a personal retirement account to which the company makes regular contributions. You may have a choice as to how this account will be invested -- in stocks, an annual fixed-income contract or money market funds. If you put most of it in stocks, you could be in trouble.
Younger workers are safe. Life is long and markets come back. But you might want to make some changes in how you invest. Even young people shouldn't be fully committed to stocks for money they're going to need when they're old. The magnificent power of compound interest does the most for people in their twenties who have 40 years to let it run.
If you're middle-aged, the picture changes. Right now, no one knows how long it will take for stocks to come back. If it happens within a couple of years, you haven't lost anything. Normally, it shouldn't take longer than four or five years, unless serious economic problems develop. Then you might be looking at a 10-year wait or more.
Those close to retirement should not have had much of their money in stocks in the first place because you couldn't afford the risk. If you gambled, you've lost.
What can you do now? Delay your retirement if you think the market will come back, according to consultant Michael Gordon. Find out whether your plan allows installment payments, suggests Jim Geld of Mercer-Meidinger. The value of future payments might rise when the market does.
If, before the crash, you notified the plan that you were going to retire and fixed a precrash valuation date -- say, on Sept. 30 -- you should get the full value of your account on that date, even though the shares may not have been sold until the end of October. The pension fund will take the loss -- meaning that it comes out of your colleagues' pockets. (Some companies may decide to contribute extra money to the plan so that the remaining participants don't suffer too much.)
In some plans, you can retire with benefit of hindsight. New York City teachers, for example, could decide late in October to retire and still get the value of their annuity as it stood on Sept. 30, before the crash. That's a huge windfall.
Check this aspect of your own plan if you're up for retirement soon. Some companies can give September's values to employes quitting as late as the first week in December.
You may find that this ploy doesn't always work. Many pension plans allow for an alternate valuation date -- meaning they can change the rules if the outcome seems unfair. And it would indeed be an unfair windfall to let you decide after the crash that you want to grab precrash money at other employes' expense.
If you were depending on an employee stock-ownership plan (ESOP) that is heavily invested in the stock of your own company, your heart may be in your boots. The crash shows the risk of stocks in general and lack of diversification in particular.
The new tax law requires ESOPs to give you a chance to diversify if you've reached age 55 and have worked for the company for at least 10 years.
But it's too late to help those retiring now.