Wednesday May 18, 3:45 pm ET

By Eileen Alt Powell, AP Business Writer

Pension Conversions, Freezes Impact Workers` Retirement and Happen With Increasing Frequency

NEW YORK (AP) -- Troubled United Airlines ended its traditional pension plans dramatically earlier this month, abandoning them in a highly publicized move to the federal government`s pension insurance agency. But many other traditional plans die quietly, either converted to ``hybrid`` plans or frozen and replaced with worker-funded 401(k) plans.

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And it`s happening with increasing frequency.

The Pension Benefit Guaranty Corp., which insures private sector pensions, says the number of covered plans has dropped from a high of 112,208 in 1985 to fewer than 30,000 today. Of those remaining, some 20 percent are hybrid designs such as cash balance plans under which companies allocate pay and interest credits to accounts in each employee`s name.

Traditional pension plans provide workers with a set amount of money each month when they retire. Workers generally accrue less retirement money in hybrid plans, and companies make only limited ``matches`` to employee contributions in 401(k) accounts.

Younger workers who have many years to go before retirement can make up the difference by stepping up their savings. But older workers -- especially those 50 and up -- often face difficult decisions when they find that their pension plans are being changed, because they don`t have the luxury of time to catch up.

These older workers, experts say, need to study new pension offerings carefully and weigh alternatives that may include working longer or cutting back retirement expectations or both.

Those were options that Janet Krueger, 53, of Rochester, Minn., faced in 1999 when International Business Machines Corp. converted its traditional pension plan to a cash balance plan.

Krueger, a programming consultant with IBM for more than 23 years, had expected to get at least one-third of her salary at retirement, as her father had when he retired from an engineering career at IBM.

``When I first looked at it (the new plan) I was in shock,`` she remembers. ``I thought, these numbers can`t be right. There must be a mistake.``

But after talking with IBM human resources personnel and other workers, she determined that the pension she had come to expect wouldn`t be there.

``I calculated that under the cash balance plan, I would have to work until 78 to get the same annuity (monthly benefit) I would have had at age 65 under the old plan,`` Krueger said.

Some disgruntled IBM workers sued the company, alleging that older workers were being discriminated against. Krueger simply quit and, after a number of years of private computer consulting, she has changed careers and is one year away from completing law school.

IBM, meanwhile, has announced that starting next year, new workers will be offered no pension, only a 401(k) savings plan.

Over the past year or so, a number of other companies including Sears Holding Corp., Motorola Inc., NCR Corp. and Aon Corp. have frozen defined benefit plans and switched to 401(k)s.

Lynn Dudley, a vice president and senior counsel at the American Benefits Council, a pension industry trade group in Washington, D.C., noted that one advantage of the hybrid plans is that they`re ``portable,`` meaning that workers likely to change jobs can take their retirement money along with them to their new employer. Workers who have 401(k) plans can take their money along, too.

But companies are wary of adopting hybrid plans, she said, because the government hasn`t resolved a number of pending legal questions, including whether they discriminate against older workers. And traditional plans are not only expensive to maintain but also have unresolved legislative issues over how they must be funded, she added.

Dallas Salisbury, chief executive officer of the nonprofit Employee Benefit Research Institute in Washington, D.C., noted that just 20 percent of today`s retirees are collecting a monthly pension -- about as high as it`s ever been.

``But that means 80 percent of retirees never got those annuity payments ... and it`s likely even fewer will get them in the future,`` he said.

That means a majority of workers need to look at increasing their contributions to their company-sponsored 401(k) plans or set up tax-deferred Individual Retirement Accounts or both.

``The vast majority of American workers are not saving enough to have adequate retirement income, and that`s a potential disaster,`` Salisbury said. The upside in the highly publicized United Airlines case ``may be that it wakes up tens of millions of Americans to understand that they have to save for themselves,`` he said.

www.pbgc.gov

www.americanbenefitscouncil.org

www.ebri.org