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 a background reading, see Pension Plans: Pain Or Pleasure?)

IN PICTURES: Dealing With 9 Co-worker Personality Conflicts

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 axe in such cases because they can be a huge expense for employers.

2. Your employer goes bankrupt.
That's obviously never a good sign. Bankrupt companies are much more likely to terminate a pension plan and they will for sure if they file under Chapter 7, meaning the company will be liquidated to pay creditors and 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 you 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.

IN PICTURES: 6 Great Companies With Top-Notch Healthcare Benefits

5. Your company is sold.
If that happens, the company that buys you out could decide not to take on sponsorship of your old company's pension plan. That would be spelled out in documents describing the terms of the sale.

6. Your company sends you a "participant notice."
This 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.

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.

Or, 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. But the sooner you know, 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. (To learn more, check out Analyzing Pension Risk.)

For the latest financial news, see Water Cooler Finance: Poverty Rates Increase – And So Do Millionaires.

Related Articles
  1. Retirement

    Retirement Tips for Doctors

    Learn five tips that can help physicians get back on schedule in terms of making financial preparations they need to retire.
  2. Investing Basics

    Do You Need More Than One Financial Advisor?

    Using more than one financial advisor for money management has its pros and cons.
  3. Insurance

    Cashing in Your Life Insurance Policy

    Tough times call for desperate measures, but is raiding your life insurance policy even worth considering?
  4. Retirement

    Is Netflix Stock Suitable for Your IRA or Roth IRA?

    Learn about the risks of Netflix's business plan and long-term corporate strategy, and see if the stock's risk/reward profile warrants inclusion in an IRA.
  5. Retirement

    Pros and Cons of Deferred Compensation Plans

    Learn about the pros and cons of non-qualified deferred compensation (NQDC) plans, including the flexibility of non-ERISA plans and the potential for forfeiture.
  6. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  7. Mutual Funds & ETFs

    The 8 Most Popular Vanguard Funds for a 401(k)

    Learn about some of the mutual funds in Vanguard's lineup that are popular among 401(k) investors, and find out why you should consider them.
  8. Retirement

    Is Caterpillar Stock Suitable for Your IRA or Roth IRA?

    Learn about Caterpillar's suitability for a retirement portfolio. Does CAT have long-term viability? Find out if CAT is better for a traditional IRA or Roth IRA.
  9. Financial Advisors

    How to Help Plan Sponsors Meet Fiduciary Duties

    Advising 401(k) plan sponsors is a great business model for financial advisors. Here's how advisors can help plan sponsors meet fiduciary obligations.
  10. Retirement

    4 Ways to Boost the Amount You Save for Retirement

    Retirement can easily last more than twenty years, which means you have to save a lot. Thankfully, there are ways to enhance the amount you put away.
  1. Are catch-up contributions included in the 415 limit?

    Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>
  2. Can catch-up contributions be matched?

    Depending on the terms of your plan, catch-up contributions you make to 401(k)s or other qualified retirement savings plans ... Read Full Answer >>
  3. Are catch-up contributions included in actual deferral percentage (ADP) testing?

    Though the Internal Revenue Service (IRS) carefully scrutinizes the contributions of highly compensated employees (HCEs) ... Read Full Answer >>
  4. Who offers 401(k) plans?

    401(k) plans are one of the most common retirement plans available. A 401(k) plan must be offered by a business. These plans ... Read Full Answer >>
  5. Do tax brackets include Social Security?

    A portion of your Social Security benefits may be subject to federal taxation using tax brackets. Your tax bracket is determined ... Read Full Answer >>
  6. Can a 401(k) be used for a house down payment?

    A 401(k) retirement plan can be tapped to raise a down payment for a house. You can either borrow money or make a withdrawal ... Read Full Answer >>

You May Also Like

Trading Center