NATION Workers will get more information on pension plans' funds

The added information should help workers better plan for retirement.
DOW JONES NEWSWIRES
NEW YORK -- If you've got an old-fashioned pension, you could soon get a notice from your employer telling you the plan is underfunded.
But don't panic -- yet.
News that your pension is underfunded doesn't necessarily mean your benefits are in trouble.
"The important thing is for people to keep it in perspective," said Judith Mazo, a senior vice president in Washington for consulting firm Segal Co. "It can be unduly alarming."
Typically, companies are required to send out underfunding notices if the plan is less than 90 percent funded in two out of three years.
As companies struggle with widening pension deficits, they're also under pressure to provide employees with more information.
Although most employees today have 401(k) and other defined-contribution plans, those with defined-benefit plans -- where the employer pays a fixed sum that depends on a worker's wages and years of service -- should pay careful attention to their pension reports.
That's because any additional information can help workers plan for their retirement more effectively.
Companies are already required to tell workers when their pensions are underfunded or when a change in the plan reduces benefits. And more information could soon be coming.
New requirements
Provisions in President Bush's pension reform plan would also require companies to annually disclose the value of their pension assets and liabilities, calculated by their worth if the plan were to be terminated.
So if you're worried your benefits will be reduced, you could increase your savings or set up another retirement account, such as an Individual Retirement Account.
In 2002, fewer than 10 percent of about 33,000 defined benefit plans sent notices of their underfunded status to workers and retirees, according to congressional testimony on the reform plan earlier this week from Ann Combs, assistant secretary for the Labor Department.
In fact, the number of underfunding notices declined in 2002 from 2001, in part because companies were allowed to use a higher interest rate to calculate their pension liabilities, according to the Pension Benefit Guarantee Corp., or PBGC, the federal agency that insures defined-benefit plans.
But employees could soon get more pension underfunding notices because companies have until Sept. 15, by law, to make contributions for the prior year (assuming a calendar year cycle), said Steven Kerstein, managing director of Towers Perrin's global retirement consulting practice.
As a result, some companies may still be in the process of determining their plans' final funding levels.
Checking the situation
Rather, a better predictor of whether your benefits will still be there when you retire is to look at your company's financial strength.
Since pensions are long-term obligations, an underfunded pension is likely to bounce back once the stock market and economy improve, assuming that the employer is still in business, Mazo said.
A plan that's less than 75 percent funded should be a cause for concern, she noted. At the very least, it raises the possibility that the employer will have to do something more to bring the plan's liabilities and assets into balance, such as trimming benefits.
A company with a seriously underfunded pension could mean it is having trouble paying back its lenders -- a potential sign that bankruptcy may be near.
Also keep in mind that the federal government guarantees pension benefits up to a certain level.
Those who have a higher level of benefits could see benefits above the maximum amount guaranteed by the PBGC reduced.
Workers should ask their employers what plans they have for bringing the pensions back to a fully funded level, Kerstein said.
They can also ask employers or plan administrators if their plans are insured by the PBGC because there are some -- namely those offered by companies with fewer than 25 employees, church groups or federal, state or local governments -- that aren't insured.