Why Pensions Are Probably Safe

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What if the bank or financial company that sends me my pension check each month is in trouble or bought? Could that affect my income?

No. They are only the processor of your payment. Your former employer is the one that funds your pension, and pension-plan assets are separate and distinct from all other assets of both your former employer and the third-party check processor.

Should I worry about the fact that the PBGC has lost $3 billion?

If you are one of the 1.3 million people whose employer has gone bankrupt and your plan has been taken over by the PBGC, you might find that $3 billion figure disconcerting. But "people shouldn't be worried," says Jeffrey Spiker, a spokesman for the agency. The PBGC has assets of $68 billion, plenty to pay current obligations. Although it has lost money on its equity portfolio, the agency has made money on bonds, where its investments traditionally have been focused.

From last October to the end of August, Spiker says, the PBGC is down about $1.2 billion, or 6%, "which is not bad for this environment." Also, interest rates have been dropping fast, which lowers the agency's calculation of liabilities. So fast, in fact, that the PBGC is likely to come out of this downturn with a $2 billion smaller deficit than it had last year.

What happens if things get so bad at my employer that it goes into bankruptcy and the PBGC takes over my plan—will my benefits drop?

For most people, benefits won't change after a transfer. But in some cases your check can shrink after a PBGC plan takeover. Benefit increases made within five years of the PBGC accepting the plan will not be honored. Also, you can be penalized if you decided to retire before 65. The maximum the PBGC will pay per person is set each year by Congress. For pension plans terminating in 2008, the maximum is $51,750 per year for those who retire at age 65, up from $49,500 for 2007.

What if my company is running a big pension deficit and I think they may freeze the plan? Is there anything I can do to maximize it ahead of time?

Unfortunately, no. "Defined benefit plans are not interactive. You can't increase your contribution," says Johnson. "You're along for the ride."

What do I do if I only have a 401(k)?

Retirees relying on 401(k)s are feeling the pain, without a doubt—especially if they were heavily invested in international stocks, or any stocks for that matter. But Johnson advises they don't panic. "Over time it will come back, the markets always come back," Johnson says. "If you sell stocks and buy all bonds, you're locking in those losses. You've turned them from paper losses to real losses."

Still, if you're actually relying on 401(k) distributions to pay the rent, you do have a real problem. Minimize that as much as you can, says Johnson, either by using other assets first, or maybe by taking on part-time work, if that's possible.

Byrnes is a senior writer for BusinessWeek in New York.