Traditional company pensions are going away fast

Nine years ago, Devon Group, small PR and marketing group based in Middletown NJ, began offering a traditional pension plan to its employees. Business was booming, and costs of offering the benefit "seemed very reasonable," says Jeanne Achille, Devon CEO. A pension plan also provided some valuable tax benefits for the firm. But after the economy deteriorated last year, "We realized this was going to be too rich a benefit for us to continue," she says. "You're required to fund the plan every year, regardless of whether your profits are where you'd like them to be." Rather than continue funding the plan, Devon Group voluntarily terminated its pension & sent each employee a check for the amount accrued. The number of companies offering traditional defined benefit pension plans was shrinking even before the recession, but the downturn has accelerated the decline. Since the beginning of the year, at least 20 companies froze their defined pension plans, exceeding the number of plan freezes for all 2008. A recent survey by Watson Wyatt found that, for the 1st time, the majority of Fortune 100 firms are offering new salaried employees only one type of retirement plan: a 401k or similar "defined contribution" plan. The rapid disappearance of traditional pensions comes at a time when workers saw their retirement savings eviscerated by the bear market. The average 401k balance dove 27% last year, according to Fidelity Investments. While young workers have time to make up the difference, workers in their 50s & 60s will have a hard time recovering losses before retirement. "The market collapse has just proven how fundamentally flawed 401(k) plans are as a vehicle to provide retirement income," says Karen Friedman, policy director for the Pension Rights Center. But increasingly, employees can't rely on traditional pensions, either. Reasons they're endangered: