Are Traditional Pension Plans Doomed?

With IBM's announcement Friday that it will shift employees from traditional pensions to 401(k) retirement plans, American workers once again were put on notice that even healthy companies with fully funded pension plans offer no guarantee of security.

IBM says beginning in 2008, it will freeze the traditional monthly pension benefits of its 125,000 U.S. workers and shift its work force to a less-generous 401(k) plan -- saving the company almost $3 billion a year.

Big Blue is just the latest financially healthy company to save money by eliminating lifetime pensions for workers. Last month, it was Verizon. Before that, Motorola, Hewlett-Packard and Sears made similar moves.

"Defined-benefit plans are on their way out," said Alicia Munnell, director of the Center for Retirement Research. "This is just another example of that phenomenon."

Traditional defined-benefit pension plans indeed seem to be a vanishing piece of the American dream, according to numbers from the American Benefits Council. In 1994, there were 58,000 plans. Ten years later, there were 29,000. And pension analysts expect them to disappear even more rapidly this year.

"I think we could potentially see more plans being closed to new employees," said David Zion, a pension analyst for CSFB. "I think we could potentially see more plans being frozen, and in the most extreme cases, more plans being terminated."

Vulnerable Workers

Workers at all levels -- from the rank-and-file to management -- are vulnerable, especially if they work for old-line industrial companies with union workers.

"Toward the top of the list would be auto companies, auto components companies, airlines, aerospace companies, machinery companies, construction companies, metals and mining companies," Zion said.

All those industries are now moving into a 401(k) world.

Analysts say the problem is not simply that 401(k)s accumulate less money, but that workers are responsible for managing them and many do a terrible job. One in four workers doesn't participate at all, according to the Center for Retirement Research. And fewer than 10 percent contribute the maximum amount allowed.

"Workers who have to rely on 401(k) plans are very likely to end up at retirement with inadequate resources," Munnell said.

Retirement analysts say companies deserve a share of the blame for poor, 401(k) participation rates. They say the only sure way to get workers signed up is for companies to enroll them automatically.

ABC News Betsy Stark originally reported this story for "World News Tonight."