Nest Egg Cracked?
Can you count on your pension? Here's a survey that can help you
By Pamela Yip, Dallas Morning News
From the St Paul Pioneer Press
Wednesday, March 22, 2006
How do you gauge the strength of your traditional
defined-benefit pension plan and the chances of your pension
being cut back?
There are factors you should look at to assess your risk, and
our nonscientific scorecard can help.
You'll find a different set of questions depending on whether
you work for a private company or for the government.
Score yourself as directed; the higher your score, the greater
QUESTIONS FOR PRIVATE-SECTOR WORKERS:
1. Are you still working or are you retired and already
If you're still working, you get 1 point on the theory that
retirees already receiving benefits are less likely to see an
interruption or sudden change in their benefits. They're still
vulnerable to a loss or reduction of retiree health benefits,
but so are you.
Also give yourself another point if your accrued monthly benefit
exceeds the amount that the federal Pension Benefit Guaranty
Corp. will guarantee if your employer folds or has financial
2. If you're retired, have you seen significant changes in
your pension or health care benefits?
If changes occurred once every 10 years, give yourself 1 point.
If they've occurred more than once in a decade, you get 2
3. Have your pension benefits been negotiated as part of a
If not, you get 1 point. You're more vulnerable because your
benefits are more easily eliminated and aren't protected by a
collective bargaining agreement.
4. Are you in a low-margin, cyclical industry, such as
airlines, or a more stable industry, such as consumer staples?
If you work in the first category, add 1 point on the theory
that in the next economic downturn, your company and therefore
your pension, may suffer.
5. Is your company's pension currently underfunded?
If yes, you get 1 point. When a pension plan is underfunded, its
pension liabilities exceed its assets.
Companies may decide to freeze an underfunded pension plan,
meaning workers stop earning future benefits.
"The chances of them deciding to do that increase if the plan is
seriously underfunded," says Rick Davenport, an actuary and
principal at Deloitte Consulting LLP in Irving, Texas.
You can find out whether your pension is underfunded by looking
at the Internal Revenue Service's Form 5500, Annual
Return/Report of Employee Benefit Plan, which you can obtain
from your company or at
Divide the current value of assets by the accrued liability, and
that will give you the funding percentage of the pension plan.
If your plan is 90 percent funded or higher, it's in great
shape. If it's 70 percent funded or less, that's a red flag.
6. Has your company already started cutting back on benefits,
such as health care and retirement, or has it recently
established a 401(k) savings plan?
If yes, you get 1 point because your employer may be on the path
to freezing your defined-benefit pension plan and replacing it
with a 401(k) savings plan.
Many companies have announced they're either doing away with or
cutting back on their traditional defined-benefit pensions in
favor of defined-contribution plans, such as 401(k)s.
Add another point if your employer has converted a traditional
defined-benefit plan to a "cash balance" defined-benefit plan.
7. Is your company currently in bankruptcy?
If yes, you get 2 points, as these companies almost always
change the defined-benefit pension plan.
IF YOU'RE A PUBLIC-SECTOR WORKER:
1. Is your plan underfunded?
If yes, you get 1 point.
You can find this out by looking at the plan's annual financial
report or newsletters the plan sends to its members.
Before you panic, find out how the government entity is
responding to its underfunded status.
2. Are you still working, or are you retired and already
If you work, you get 1 point on the theory that those already
receiving retiree benefits are less likely to see sudden
interruptions in their benefits. Public-sector pensions have a
variety of legal protections under the U.S. Constitution, state
constitutions and state legislation.
3. Have your elected officials increased benefits without
providing new funding?
If yes, you get 1 point.
4. Have your elected officials delayed pension contributions
in order to spend on other programs and avoid tax increases?
If yes, you get 2 points.
5. Is the government entity you work for in an area where the
population is growing or decreasing?
You get 1 point if the population is declining because that
shrinks the tax base.
If you got:
0 or 1 point:
You're in fairly good shape as far as your pension goes, but
your pension and Social Security benefits alone are unlikely to
sustain you during retirement. You should have other savings,
particularly if you need to purchase health insurance to
Talk to a financial adviser about retirement-savings options and
save more. You should be doing this anyway.
Be concerned about your pension's future and save a lot more.
4 to 7 points:
You should have been checking to see whether you're on track in
your retirement savings before you got to this dire point