Underfunded defined benefit pension plans becoming more common
YONKERS, N.Y. - Some 44 million workers in the United States have an additional asset to their "shrinking" 401(k) retirement accounts - a defined benefit pension plan, according to a recent Consumer Reports survey/article. In contrast to the 401(k), the defined benefit plan is the sole responsibility of the employer. It promises to make a specific monthly payment-or a lump sum-at retirement based on the employee's salary and years of service. In the past two years pension plans, like other investments, have suffered tremendous losses in the market, the magazine found. As a result, in 2001, many plans, including those from some of the nation's biggest companies-General Motors, Exxon, Mobil, and AMR-were seriously underfunded. And with many investments continuing to yield much lower returns than they did in years past, 2002 threatens to be worse, Consumer Reports said. With pension plans, if the returns are insufficient to pay participants what they would be due, the employer must make up the difference under rules set by the 1974 Employee Retirement Income Security Act (ERISA). If the employer goes under or can't continue the plan, the Pension Benefit Guaranty Corp. (PBGC), an employer-funded government insurance program, will step in and pay beneficiaries instead. Consumer Reports suggests the following: * paying attention to the pension plan. The Summary Annual Report can alert you to problems such as large investment losses, loans to company officials, and outsize investments in one stock. If there's anything questionable in any plan, contact the Pension Welfare Benefits Administration at (866) 275-7922 and ask for contact information on the nearest regional office; * if an employee is already retired and the plan is healthy, the benefits are guaranteed; * if an employer changes the pension formula in a way that will reduce an employee's ultimate benefit, consider contributing more to the 401(k).