Boomers face pension risks
By Stephanie Armour and Kathy Chu
USA Today
The trend by companies to freeze or end their employee pension plans may have a big impact on baby boomers now on the cusp of retirement.
Boomers with pension plans have counted on monthly retirement checks at the end of their career, but more employers are ending their plans or halting future benefit accruals. Those at greatest risk include boomers in their late 40s and early 50s, who are still at least a decade from retirement but too old to save enough to make up the difference in their pension benefits.
An August survey by PricewaterhouseCoopers showed that nearly half of companies that expect to change their pension plans in the next year are considering freezing benefits for all employees. More than a third that offered pensions have pared back these benefits over the past three years.
"This will definitely be a problem for baby boomers," says Karen Friedman at the Pension Rights Center. "You've been at a company under the plan and worked for years with that expectation, and then it's taken away."
The pension changes are creating challenges because:
And if a company moves them from a traditional to a 401(k) plan, it can also hurt financially because pension amounts are typically based on higher earnings later in a career. Boomers may have been counting on that only to find they will accrue less under a 401(k).
"Younger people will have more time to make up ... the negative effects," says Syl Schieber, director of U.S. benefits consulting at Watson Wyatt Worldwide.
When companies freeze a plan, they keep it in place but halt future benefits that would have been earned. Terminating a plan involves closing it down, although accrued benefits aren't taken away. Companies often then change to 401(k) plans, which puts more of the risk for managing retirement accounts on employees.
Some analysts say some boomers could see the trend away from pensions ebb, especially with stable stock market returns.
