Next Recession Victim: Your Pension and Retirement Plan

IMAGE: Pension plan choices may shrink

As if there weren't already plenty of economic gloom and doom these days, now some U.S. workers are apparently starting to worry about the safety of their pensions.

Cash-strapped companies are cutting back everywhere possible, and one target has been retirement plans. With the stock market down, companies have been forced to contribute more money to their plans in order to keep them fully funded. Several are deciding instead to end future contributions to the programs.

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Another set of workers has another concern: Their companies have gone into bankruptcy. Pensions are insured through the Pension Benefit Guaranty Corp., a creation of the Employee Retirement Income Security Act of 1974. But there are limits to the insurance, now $54,000 a year for workers who retire at age 65. Younger retirees receive less.

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Raul Miller, a 55-year-old flight attendant for United Airlines, had expected to retire this year after 36 years with the company. But when the airline emerged from bankruptcy in 2007, his pension was a lot less than what he had planned.

"It's was sustainable enough to begin with," Miller said. Now that the pension has been cut, though, "it means that I cannot retire. It means that I have to continue working as long as I have expenses."

Miller said he pays more today for food, gas and countless other daily living expenses.

"While everything else is going up, our pension is going down," he said. "My pension is not going to be substantial enough. I'm going to have to have a full time job."

Like many other workers, Miller had taken his job expecting and planning on having a pension.

"I was working hard and loyally for this company and one of the reasons was, one of the things I was looking forward to, was the security of a pension in my retirement," he added. "It's just not happening the way I anticipated."

Even if your company doesn't go bankrupt, you might not get the pension you once thought you would. About one-third of employees nationwide participate in a traditional or defined benefit pension plan.

Pension plans pool together the retirement savings of an entire company's workforce, young and old. The employer sets aside an amount of cash each pay period, based on a percentage of each worker's salary. The percentage is set by how long the average worker is expected to live, what kind of return the company hopes to get on its investments and on how large of a payout the company plans to make at retirement. It all gets invested and is eventually used to make payments to workers once they retire.

Freezing Pensions

Many companies are deciding to freeze those pensions now in order to save money in the long-run. Employees get credit for their time already served but won't get any additional credits. That can really hurt employees who are close to retirement but not quite there because pension plans tend to give more generous benefits for the later years of service.

For instance, one employee might have planned on staying with a company for 30 years, only for it to freeze the pension during their 25th year. The employee would still get credit for those 25 years of work, but it's really those last five years that push up the value of the pension.

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