How safe is your pension?
If your employer goes broke or simply decides to freeze your pension plan, you may end up with less than you expect.
by Geoffrey Colvin, FORTUNE senior editor at large

NEW YORK (FORTUNE) - If you've earned a monthly pension check under your employer's defined-benefit pension plan, the odds are good that you'll get at least some money, even in the worst-case scenario.

Unfortunately, there's little you can do to protect the full amount you've earned. Here's how to handle two particular dangers that could cause you to get less than you expect.

As competitive pressure mounts, even healthy firms are killing off pension plans. (more)
With health-care bills taking a bigger bite out of the bottom line, coverage for retirees is disappearing fast. (more)

* Your employer's underfunded pension plan could be turned over to the Pension Benefit Guaranty Corp., which insures U.S. pension plans. In that case the PBGC would take over the job of managing the pension fund and paying beneficiaries like you. But the PBGC limits the amount it pays; for plans ending this year, the maximum is $47,659 a year. If you were expecting more than that, then you're out of luck. That's what happened to many retired United Airlines pilots when UAL dumped its plans on the PBGC last year.

That probably won't happen to you unless your company is in dire financial trouble and your plan is seriously underfunded. You already know whether your employer is in extremis. To check your plan's status, look deep in the footnotes of the financial statements in the annual report or 10-K for info on your plan's health. If it is underfunded by more than 20 percent of its total value - and your company is on the verge of bankruptcy or already in it - start worrying. If you're old enough to qualify for a lump-sum distribution, you may want to take the payout rather than risk a diminished pension.

* Your employer could freeze your plan. That means you'll receive all the pension benefit you've earned up to the freeze date, but you won't accumulate any more benefit after that date. Perfectly healthy companies with sound pension plans have done this lately - IBM (Charts) announced it early this year - so studying financial statements won't help you predict it.

Ari Jacobs, retirement practice leader at Hewitt Associates, says, "It's very industry-specific, and more likely in high tech, telecom, and retail," plus other industries in which many firms don't have defined-benefit plans at all. "It's less likely in utilities, aerospace, and oil and gas - industries where people still stay for a full career," he says. If your employer freezes its plan, you can still take a lump sum if you want - but not until you reach the qualifying age already specified in the plan. Top of page