Menu
Share
Share this story
Close X
 
Switch to Desktop Site

Traditional pensions: Are they at risk?

Many defined-benefit plans are underfunded. Here's how to keep track of your benefits.

About these ads

As Americans confront the reality of severely depleted retirement savings, a new financial specter threatening retirement security emerges: the solvency of defined-benefit pension plans. Experiencing their worst historic performance in 2008, both public and corporate pension funds have faced staggering losses, placing enormous financial pressure on state and local governments and corporations that fund them.

Bill Frieske, vice president of investment risk and analytical services for Northern Trust, projects an average 26 percent loss among these pension plans from January through October of this year. The average allocation for such funds is classified as a "moderate risk" portfolio: 45 percent US equities, 15 percent international equities, 35 percent fixed-income investments, and 5 percent cash or cash equivalents.

Corporate employers face an added challenge in addressing their pension fund losses. The 2006 Pension Protection Act (PPA), effective this year, requires corporate pension funds to be fully funded by the end of 2008. This high threshold will be difficult to achieve for many of the 700 largest corporate plans, which have fallen to an average of 83 percent funding, down from 100 percent at the end of 2007.

Once a corporate defined-benefit plan falls to between 60 percent to 80 percent funding, retiree lump-sum benefits will be restricted to 50 percent of payouts due retirees. Lump-sum payouts have been a popular option for those who have retired in recent years.

Some pension experts want Congress to delay implementation of the PPA rule requiring full funding until financial markets are stabilized. "If companies are required to infuse a massive amount of money into pension plans to meet the 100 percent funded requirement by the end of 2008, they may be compelled to freeze plans in the future to mitigate against future negative impacts," warns James Klein, president of the American Benefits Council, representing corporate pension plans.

Next

Page:   1   |   2   |   3


Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.

Loading...