Pension plans have long been offered as part of employee benefit packages. Long thought to be an integral part of any retirement plan. But in todays environment, with large corporate bankruptcies and massively underfunded pension programs, do you still rely on your Pension plan?

For years individuals have relied of defined benefit pension plans offered by their companies. Years ago it was sometimes seen as all the retirement planning that most individuals would ever need. Between you company’s pension, after working there for decades, and social security what else would you need?

As we all know this is no longer the case. While I’m lucky enough to work for a company that still offers a pension as part of it’s benefits packages, many individuals are not. Even those who have long since retired face the prospect of having their benefits cut. Either by the company as it struggles with it’s underfunded plan, or by the government when the company goes bankrupt and sheds their pension obligations.(Even those benefits are in jeopardy, as the entity that takes over the pension obligations is it self suffering from a funding gap.)

Even the companies that still offer pensions plans are not garaunteed to continue offering those benefits. Even then there are employees, and managers who would prefer some form of “supercharged” 401(k). Myself among them. So I ask, what role does your pension plan play in retirement planning? Is it an integral piece of the puzzle, something that you rely on you supplement your retirement income? Or just a nice to have with anything that comes out of it being just a bonus? Please come join me in our forums for a discussion about this.

Resources
Deal is Near on Pension Proposal (Washington Post)

Comments (4)

My company has a pension plan, and I have no reason to doubt that it will still be there when I retire. But I’m not counting a single penny of that pension plan toward my total retirement savings. If it’s there when I retire, great! If not, I won’t be the least bit disappointed or unprepared.

In a discussion once with my Dad, I warned him about relying on his pension plan for retirement. He in turn warned me about my 401k plan, asking “How do you know they will give you that money when you retire?”

Now my father doesn’t have much knowledge of investing or 401ks, but his point is a decent one to follow up on anyway. What are the risks with 401ks, IRAs, and other investment vehicles that are replacing pensions these days?

What if your broker goes under? What kind of insurance do you have for getting paid? Will Uncle Sam back us up? Will they do a better job of backing us up than they are doing with pensions?

I really don’t know the answers to the above and would appreciate anyone who has any insight into this.

I present a somewhat contrarian view in my article The End of Retirement which is based in part on an excellent series on PBS.
It turns out that the very concept of retirement may be obsolete – hence my suggestion that preparation for old age should go beyond mere financial planning.

In most cases, you don’t want to leave money in your 401(k). The choices available to investors who are seeking larger returns are very limiting. After leaving a job, it may be better to close up the 401k and roll it over to a Traditional IRA where most of the market will be available to you.

That being said, even if you were to leave your money in a 401k, the company that administers your 401k, in my case T. Rowe Price, doesn’t own the shares in your account. They do hold the certificates, but as proxy for you. If they were to go under, I don’t believe they have any rights to your assets, period.

Even though we risk the market swings, the pension is just as vulnerable as much of their assets are in stocks and bonds. They also buy insurance annuities and mortgage-backed securities, which is also relatively easy for small investors to gain access to.

I would always rather be in control of my own portfolio and view the pension as a bonus, just like the rest of you. At least I’ll have no one to blame but myself if my portfolio is underfunded.

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