Pension apprehension

For many owners of 401(k) retirement plans, the stock market's slide has been tough to swallow. Ideas of early retirement have evaporated as gains built up in the late 1990s eroded.

But 401(k)s are only part of the story of struggling retirement plans.

Many traditional pension plans – where companies are the sole contributors on behalf of their employees – are suffering, too. Cleveland steelmaker LTV Corp., for one, set up pension funds for its 82,000 workers and retirees before it went bankrupt in 2000.

In March, three of the funds were $2.2 billion in the red, leading the Federal Pension Benefit Guaranty Corp. to step in with its biggest-ever bailout of a pension plan.

Last month, shortfalls in private-sector pension plans soared to a record $111 billion, the agency said.

That seems ominous, but it's not necessarily cause for alarm. Most of those plans are still more than 80 percent funded, says Jeffrey Speicher, a PBGC spokesman. "The figure is not an indicator of crisis. It represents underfunding among pension plans with the largest underfunding," Mr. Speicher says. "So individuals should not be concerned about the health of their own pension without knowing the specifics of their plan."

The PBGC only insures "defined benefit" plans. Unlike 401(k) plans, only employers contribute to these plans. The employer also controls the payout upon retirement.

"It's the employer who's on the hook" should the investments inside a traditional pension fail to generate enough funds to pay retirees, says Lenny Sanicola, of WorldatWork, a Scottsdale, Ariz.-based association of compensation and benefits professionals.

If a company makes unwise investment choices, Mr. Sanicola says, it has the responsibility to make up any shortfall. General Motors, for example, made a $2.2 billion contribution to its pension plan earlier this year in hopes of eventually making up a $9.2 billion gap in funding.

Besides cash, pension providers also use stocks, real estate, or other investments to fund their plans. At the same time, they pay into a PBGC-controlled insurance fund to bankroll any payouts for the 44 million or so Americans who work at companies with defined-benefit plans.

When companies can't meet their pension obligations, the PBGC steps in to provide qualifying pensioners with some sort of payout. "We're there as backup," says Gary Pastorius, also with the PBGC. "That's the great virtue of defined-benefit plans."

Yet with bankrupt steelmakers, looming woes for the airline industry, and recent financial malfeasance on Wall Street, workers should not totally ignore their traditional pensions. Checking can be tough to do, though, as there is no rating system for how well one plan is doing compared with another, or whether it is adequately funded.

Pension plans, however, are regulated by the IRS, Department of Labor, PBGC, and the Pension and Welfare Benefits Administration (PWBA). That means pension administrators have to file many reports, most of which are a matter of public record. Here are the ones most pertinent to individuals:

• Summary plan description. This document, which is supposed to be written in simple language, tells the worker and the government what a plan provides and how it operates.

• Summary annual report. This gives a rundown on most financial reports that plans must file with the Department of Labor.

• Individual benefit statement. This shows what retirement benefits have accrued to you and typically will show how much is due to you if you retire at a given age.

• Disclosure notice. Plans that are less than 90-percent funded must notify employees about this shortfall.

Unfortunately, these reports have differing rules on how often they can be requested and whether they are free or carry a copying charge. Although some pension experts and employees reported regularly receiving the individual benefit statement from their employers, for instance, others said compliance seems to be spotty.

Linda, a longtime employee of a Fortune 1000 Midwest company who did not want her full name used, says her employer has given her an individual benefit statement only twice over the past several years and only after she specifically requested the information. Even with the statements she received, she still doesn't know how much money she'll have available in retirement.

"I felt like I never got enough information to learn what I'd end up with," she says.

Government rules say the benefit statement, for instance, is to be made available to an employee once every 12 months, but only upon request. Pension plan administrators who fail to come up with any of these reports can face a penalty of up to $100 per day, though the Department of Labor indicates the employee must get a court to levy that sanction because it does not have any enforcement powers.

Pension-plan administrators often will make reports available only when they are requested in writing. The PWBA booklet "Protect Your Pension" (www.dol.gov/pwba/pubs/protect/guidetoc.htm), suggests using a return receipt on the letter to ensure that the request is received.

Most of these documents also are available by writing to the PWBA, though Mr. Pastorius acknowledges that some records, such as the Form 5500 annual financial report might take 18 to 24 months after the end of a sponsor's business year to become publicly available.

A nongovernment website, www.Freeerisa.com,also provides free pension plan reports online. Named after the Employee Retirement Income Security Act of 1974 that regulates most retirement plans not run by churches or governments, Freeerisa will provide the most current Form 5500 describing company plans. It also lists every company that has terminated a plan since July 1999, and likewise lists all firms that have filed papers seeking to terminate their plans.

Pension administrators have rules to follow, such as not investing more than 10 percent of the account's funds in company real estate or stock.

Plans also have to guard against being too aggressive or conservative. Employees who read through the reports and spot trouble can report their concerns to the Labor Department or the PWBA. Criminal complaints go to the Department of Justice.

On a more personalized level, the Pension Benefit Verification Service, of St. Paul, Minn., www.pbvs.org, will, for a fee, analyze an individual's retirement plan to make sure the pensioner is receiving the proper amount of money.

The calculation of pensions can be complicated, especially if plans have merged or decades have passed, and incorrect payouts are not unheard of.

The company's president, Joe Gaworski, says business has taken off since it was founded last year.

"People are suddenly interested in their defined-benefit plans again," Mr. Gaworski says, now that they've seen their 401(k) or other defined-contribution plans wither.