The Pension Benefit Guaranty Corp., the nation's safety net for employer-funded pension plans, insures the retirement benefits of more than 44 million Americans. 

As the country transitions away from annuity-type retirement plans to employee-controlled 401(k) investment options, however, that safety net is starting to tear. 

Employers providing pensions pay premiums to the Pension Benefit Guaranty Corp., which bails out retirees when their employers terminate their pension plans. As more companies make the switch to defined contribution plans, that means fewer premium dollars flowing into the already under funded PBGC. 
"There is a cloud of liability hanging over the PBGC's head, and I'm not sure how it's going to be funded," said Michelle Wittekind, pension administrator for the Employee Benefits Group at Jackson Kelly in Charleston. 

Who bails out the safety net? It could be taxpayers. 
Congress is weathering pressure from the White House to tighten pension funding rules to avoid a taxpayer bailout of the PBGC, according to media reports. Bradley Belt, who left his position at the helm of PBGC May 31, told reporters it was "critically important" federal lawmakers pass a pension reform bill that prevents future underfunding. 

Favoring the 401(k) 
In 2005, 60 percent of workers had access to retirement benefits. More than twice as many workers were enrolled in defined contribution plans than defined benefit plans, according to the February edition of Monthly Labor Review, which used the Bureau of Labor Statistics' National Compensation Survey and other work force studies to track trends in retirement plan coverage over the past decade. 

Tracking retirement plan participation from 1992 to 2005, defined benefit plans decreased steadily. The number of single-employer defined benefit plans dropped from about 168,000 in 1985 to about 40,000 in 1999. Multiemployer plans dropped from 2,132 in 1975 to about 1,800 in 1999. 
Today, the PBGC protects the pensions of 44.1 million American workers and retirees in just 30,330 private single-employer and multiemployer defined benefit pension plans. 

The trend is clear: 

• The number of Fortune 100 companies offering pensions in 2005 has dropped to 37, down from nearly 90 in 1985. The number of companies offering only 401(k) plans rose from 10 to 36 in the same time period. 

• Total underfunding among the 1,108 weakest defined benefit pension plans in the country reached $353.7 billion at the end of 2004, the PBGC announced last year. 

• In 1980, 80 percent of American workers participated in defined benefit pensions plans. The PBGC reports that figure is now half that level.
Making the Switch 
Companies switching to defined contribution plans have elected not to rely on the Pension Benefit Guaranty Board, and some industries have good reason to make the change. 

For steelworkers, for example, the PBGC's decisions about how to fund benefits from terminated pension plans means fewer benefits will be paid than workers bargained for and planned to live on in retirement. 

"It's not like you lost your entire pension, but the issue became how old and how many years of service you had at the time the pension plan terminated," said Mark Glyptis, president of Independent Steelworkers Union at Weirton Steel (now Mittal Steel), which declared bankruptcy a few years ago, putting the pension plan under PBGC's control. 

"If you had 30 years of service (generally), you could petition the PBGC to get your entire pension. You could not get anything more than what you earned ... but the PBGC pays back less than what was negotiated. 

"... My heart goes out to the many retirees who were hurt significantly on their pension and health care," Glyptis said, explaining that the PBGC pays a percentage of pension benefits, not the entire pension value before the company's bankruptcy. 

Workers at Mittal now are enrolled in 401(k) plans, and Glyptis said they like knowing no one can take away their retirement savings. 
"It's your money. No one can come in and snatch it away from you," he said. 

Troubling Deficits 
As pension plan terminations increased over the years, the PBGC watched its surpluses vanish. Pension insolvencies following bankruptcies in the airline and steel industries took the PBCG from being flush with cash to a $22.8 billion deficit. 

This problem may be no surprise to analysts at the Employee Benefit Research Institute. In a study on the future of private retirement plans published in 2000, the institute had this to say: 

"As of Sept. 30, 1998, PBGC's single employer program had $17.6 billion in assets, against $12.6 billion in current liabilities. However, PBGC notes exposure to likely terminations (of pension plans) of an added $20 billion. Should future government actions make it legal to shift to defined contribution plans but not to cash balance, and should this occur during a period of weak markets, PBGC could well see a flood of new terminations." 

Enter the early years of this century, and that precisely is what happened. Wittekind said defined benefit plans actually perform better over time, but the risks have made them unattractive. 

"Historically, pooled trusts perform better over time. Administration fees are lower, and you're not paying 'per account' fees, for example. You get a bigger bang for your buck that way," she said. 

For years, the method of funding defined benefit plans was based on rates for 30-year U.S. Treasury bonds. But in 1998, the federal government started buying back the bonds and then discontinued them outright in 2001. That drove returns to historic lows, which increased pension liabilities and required employer contributions just when the stock market took a nosedive. 

Wittekind said the historic inverse relationship between stock and bond performance ceased -- everything was performing poorly. 

"So that created a problem for defined benefit plans," she said, adding that pension plan terminations soon grew in frequency, which meant the PBGC's surplus of 1998 was outpaced quickly by deficits. 

Not a Panacea 
Offering a defined contribution plan rather than traditional pension plan may ease the pressure on employers and give workers more control of their own retirement destinies, so to speak, but 401(k) plans are not a panacea. 
Nightly Business Report's Washington Bureau Chief, Darren Gersh, published a column Feb. 17 about pension woes. He pointed out that the average contribution to a 401(k) plan is only 7 percent of salary. One-third of eligible workers contribute nothing, and even though the average employer match is 3 percent, employers are not required to provide any match. 

Without careful planning on the worker's part, that 401(k) may not provide nearly enough income to live on in retirement. "There are people who are 45 years old who haven't really saved anything," said Richard Slater, a partner at the Charleston accounting firm Simpson & Osborne. "They'll reach retirement and not have enough. So you're really seeing people working until they die." 
For the employer community, people who do not have enough between their 401(k) and Social Security may stay in the work force longer than expected, and since older, longstanding employees typically earn higher salaries, employers could have higher labor costs. 

The bottom line to preventing a shocking financial wakeup call upon retirement is being proactive and starting to save, said Adolph Neidermeyer, professor of accounting at West Virginia University. "Regardless of your wage level, if you can force yourself (to save) it does require some lifestyle changes," he said. "But one of your choices has to be to fund at least a little bit for retirement."