The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work, and Living

Chapter 4. The Old-Fashioned Pension on Life Support

Social Security and a pension—there was a time when they went together like coffee and cream. As recently as 1980, 38 percent of private-sector American workers had traditional pension plans—funded and managed by employers and providing regular lifetime checks after retirement. By 2008, only 20 percent of workers had a defined benefit pension,^[31] although greater percentages of large companies still offer them. And the recession has produced a steady stream of newspaper stories about troubled companies with endangered pension plans threatening the retirement of employees.

Traditional pensions are still common in the public sector, although chronic underfunding of plans by government employers—along with the use of accounting tricks to paper over problems—has created huge shortfalls in the amount of assets needed to cover the pension obligations of many plans. Overall, public pensions were underfunded by about 30 percent at the end of 2008; in some cases, the shortfalls are being covered by government borrowing, but that solution can't continue indefinitely. The likely result will be increased pressure to negotiate cuts in future benefits.

Although defined benefit (DB) pensions are waning, they're still a very big part of the American retirement-security system. DB plans don't seem likely to stage a big comeback in the private sector anytime soon, although some retirement-policy experts have started pushing for a publicly sponsored ...