Consider yourself lucky if you're among the relative few working at companies that still offer "defined benefit" pension plans, coveted relics that provide a generous and reliable income throughout retirement. But even if you've got one, you can't take for granted anymore that you'll get all of the money your plan has promised. These days, more and more pensions are unable to meet their obligations and end up being terminated. Here are the top seven signs that your pension might be in jeopardy. (For background reading, see The Defined-Benefit Pension Plan's Many Problems.)

Tutorial: Retirement Planning

1. Your employer has money troubles
.
A company with severe financial issues like heavy debt, bad credit and difficulty paying bills, meeting payroll or making pension plan contributions has little choice but to cut costs to survive. Pensions are apt to get the ax in such cases because they can be a huge expense for employers.

2. Your employer goes bankrupt.
If your employer has filed for bankruptcy, this is never a good sign for your pension plan. Bankrupt companies are much more likely to terminate a pension plan; if they file under Chapter 7 they will be forced to do so, because the company will be liquidated to pay creditors and will therefore cease to exist.

3. Your pension is too "rich."
A pension may be considered too rich not because the plan is overfunded but because it pays an unusually generous benefit each year, like 50% of the salary a participant was making right before retirement. Since salaries tend to be highest at that point, such a plan can get extremely expensive and become a target for cost cutting.

4. There's talk about a "defined contribution" plan.
401(k)s and other defined contribution plans where employees contribute most of the money have become the norm largely because they're cheaper for employers. Companies commonly replace traditional defined benefit pensions with defined contribution plans to reduce costs.

5. Your company is sold.
If your company is sold to another company, the acquiring company could decide not to take on sponsorship of your company's pension plan. That would be spelled out in documents describing the terms of the sale. (Learn more about the mergers and acquisitions process in What Makes M&A Deals Work?)

6. Your company sends you a "participant notice."
A participant notice is a report you are required by law to get if your pension plan has been underfunded by a certain percentage within a specified time period, such as by more than 20% during the past year. A participant notice could be a sign your company is having financial trouble significant enough to consider terminating your pension plan. (To learn more about how to determine where your pension plan stands, see Analyzing Pension Risk.)

7. There are complaints about the plan.
Be suspicious if you consistently hear negative reports like current retirees getting their checks late or in the wrong amount, or if an auditor raises concerns about the plan's solvency. Either could be signs your pension is - or will be - on the rocks.

It Isn't All Bad
Now some good news: a pension plan termination isn't necessarily a complete disaster. With a termination, things can go a couple different ways. Your company could continue to oversee the plan but the amount you'll get in retirement is "frozen" - it will no longer grow over time.

Alternatively, an independent government agency called the Pension Benefit Guaranty Corporation (PBGC) might take control of the plan, which usually occurs when a bankrupt company is liquidated out of existence. Either way, you'll likely get a smaller pension than you might have been counting on. The sooner you know the fate of your pension plan, the better able you'll be to make adjustments such as saving more on your own and re-evaluating spending plans for your golden years.

Related Articles
  1. Savings

    What Your Credit Score Means for Your Love Life

    Wondering if your significant other wants to commit and is reliable? The Fed might have the answer.
  2. Your Clients

    Tips for Making Your Nest Egg Last Longer

    If you’re trying to figure out how to make your hard-earned nest egg last, there’s one piece of advice that stands above the rest.
  3. Investing

    3 Healthy Financial Habits for 2016

    ”Winning” investors don't just set it and forget it. They consistently take steps to adapt their investment plan in the face of changing markets.
  4. Retirement

    Early Out: A Realistic Plan to Retire Younger

    If you want to retire ahead of schedule, it'll take some extra planning.
  5. Mutual Funds & ETFs

    Which Fund Share Class is Best for Retirement?

    Mutual funds are a popular investment for retirement. Here's how to choose the best share class when investing in them.
  6. Retirement

    6 Robo-Advisors That Require Little to Start

    There are many well-regarded robo-advisor options that come with minimum investment amounts. Here are snapshots of a handful of them.
  7. Your Clients

    How to Construct an Annual Review for Clients

    One of the best things that advisors can provide to clients is an annual review of their financial situation. Here are some guidelines.
  8. Retirement

    Roth IRAs Tutorial

    This comprehensive guide goes through what a Roth IRA is and how to set one up, contribute to it and withdraw from it.
  9. Retirement

    Retirees: How to Survive When Interest Rates Drop

    Low interest rates are a portfolio killer if you're living off of investment income. Some strategies for dealing.
  10. Mutual Funds & ETFs

    4 Mutual Funds You Wish You Could Include In Your 401(k)

    Discover four mutual funds everybody wishes were in their 401(k)s. Learn which five-star-rated no-load funds leave their competition in the dust.
RELATED FAQS
  1. Am I losing the right to collect spousal Social Security benefits before I collect ...

    The short answer is yes, if you haven't reached age 62 by December 31, 2015. The Bipartisan Budget Act of 2015 disrupted ... Read Full Answer >>
  2. Where else can I save for retirement after I max out my Roth IRA?

    With uncertainty about the sustainability of Social Security benefits for future retirees, a lot of responsibility for saving ... Read Full Answer >>
  3. Will quitting your job hurt your 401(k)?

    Quitting a job doesn't have to impact a 401(k) balance negatively. In fact, it may actually help in the long run. When leaving ... Read Full Answer >>
  4. Can a 401(k) be taken in bankruptcy?

    The two most common types of bankruptcy available to consumers are Chapter 7 and Chapter 13. Whether you file a Chapter 7 ... Read Full Answer >>
  5. When can catch-up contributions start?

    Most qualified retirement plans such as 401(k), 403(b) and SIMPLE 401(k) plans, as well as individual retirement accounts ... Read Full Answer >>
  6. Who can make catch-up contributions?

    Most common retirement plans such as 401(k) and 403(b) plans, as well as individual retirement accounts (IRAs) allow you ... Read Full Answer >>
Trading Center