Is it time to switch jobs if your company's pension plan is underfunded?

Q: Recent news articles say that some companies that offer defined benefit plans are in financial trouble. The government agency that insures these pension plans is carrying an $11 billion deficit and may need a taxpayer bailout. At the same time, some economists say the stock market will only return about 4 percent after inflation over the next decade, while bonds will yield about 3 percent. With that in mind, should I retire now at age 57 and take my pension in a lump sum, knowing that the return will be in the 5 percent range and look for another job? Or should I stay at my job and wait and see what the changes to pensions will be, knowing that I will have to take the defined benefit payment and hope my employer stays healthy for the next 30 years?
C.R., via e-mail

A: Your worries about the Pension Benefit Guarantee Corp. (PBGC) are understandable, says Patti Brennan, president of Key Financial Inc., in West Chester, Pa. Many people are concerned about its ability to insure pensions given its large deficit. Add the fact that several firms offering defined benefit plans are on the brink of bankruptcy and this makes for an uncertain future.

Although these plans are protected, employers must continue to make contributions in order for employees to receive full benefits. So if receiving only partial benefits is a concern, you might consider taking the lump sum. Ms. Brennan says.

Also, no one knows for sure how any investment will perform in the future, so Brennan would not necessarily base decisions on what economists predict. Even if they're right about stocks, 4 percent above inflation is better than you'll get in a money-market account, and this benefit eventually can be supplemented by Social Security, she says.

Q: I own stock in two pharmaceutical firms. But the amount was so small I had the stocks converted to certificates to avoid the $50 annual stockbroker fee. How cam I sell these certificates without a broker?
M.C., via e-mail

A: You may be able to skip a broker if the pharmaceutical companies offer direct stock ownership and dividend reinvest- ment plans, says Geordie J. Crossan, a certified financial planner at NBS Financial Services Inc. in Westlake Village, Calif.

Contact the firms' shareholder-services departments directly to learn if they offer such services. You may be able to open an account with them directly and have your dividends reinvested without any commission costs. When you decide to sell your stock you may do it directly through the plan as well.

"If the underlying company does not offer the ability to sell the shares directly, then the investor would have to sell them through a brokerage firm," Mr. Crossan says. "I would advise he sell through an online discount brokerage firm."

Q: My wife worked before we had kids and accumulated approximately $35,000 in a 401(k), which we rolled into an IRA. We lost most of this to the bursting of the tech bubble, and it now sits at approximately $10,000. What kind of fees and penalties would we pay if we liquidated this IRA?
J.K., via e-mail

A: Because your wife didn't pay income tax on the wages steered into her 401(k), any withdrawals from the rollover IRA will be subject to income tax. In addition, if she is not yet 59-1/2, Uncle Sam will hit her with a 10 percent penalty for making an early withdrawal.

Retirement accounts such as 401(k)s and IRAs are intended to provide income during retirement, says Mary Maginniss, a certified financial planner in McLean, Va.

Just because the market value of the account has declined, however, doesn't mean you should call it quits. Ms. Maginniss recommends that you think of investing for your long-term goals and re-allocate the balance if necessary.

But if your wife is determined to cash out the IRA, there are ways to get at the money penalty free, she says. They include paying qualified medical expenses; making your first home purchase (up to $10,000); paying for higher education expenses; taking equal withdrawals spread out over her lifetime; and disability or death.

The IRS is strict about these exceptions, so check with your accountant or financial adviser for details on whether you qualify to use any of these methods.

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