Put Your Pension To Work

How you decide to take this endangered asset may be crucial to a secure retirement.

- Sandra Block

FRETTING ABOUT HOW to manage your pension is like complaining about the cost of winterizing your beach house. Lots of people  would love to have your problem. Only about 18% of private-industry  workers have a defined-benefit pension. Less than one-fourth of Fortune 500 companies offered a defined-benefit plan to new employees at the end of 2013, down from 60% in 1998, according to Towers Watson, the human resources consulting firm. The number is much larger for public-sector workers; about 80% of them have a traditional pension.

If you’re eligible for a traditional pension, you’ll be faced with important decisions that could affect your financial security, and they’re usually irrevocable. That means when you retire, you’ll need to do more than turn in your security badge and wait for the monthly checks to roll in.

Backing Away From Defined Benefits

The move away from traditional pensions reflects several trends. Employees are living longer, which increases the cost of providing a lifetime monthly payment. Low interest rates have reduced pension funds’ investment returns, requiring companies to put more money into their plans to avoid a shortfall. Government regulations designed to protect pension participants have increased the cost of offering and maintaining defined benefit plans (see the box on page 37). Finally, companies used to view pensions as a way to attract and retain good employees. But these days, a benefit that rewards longevity is a lot less valuable because workers change jobs every 4.6 years, on average, according to the Bureau of Labor Statistics.