NEW YORK - Let the worrying begin.
IBM Corp.'s announcement this month that it is freezing its $48 billion defined benefit pension plan set off waves of anxiety among employees at companies across the country - for good reason, pension experts and financial planners say.
"It was a real wake-up call. You can't assume your pension is going to be there, and you have to plan accordingly," said certified financial planner Clare Stenstrom, who is advising an IBM employee working in the computer giant's Armonk, N.Y., headquarters.
"I've been in this field since the 1970s, and I've never seen people more scared about the future," said Stephen Dobrow, a pension consultant and president of Burlingame, Calif.-based Primark Benefits, a pension administration firm.
"Defined benefit plans seem to be going away," he said. "Participants have little control over them, and there are no guarantees."
Stephen Rosen, also a pension consultant and administrator, and the immediate past president of the Arlington, Va.-based American Society of Pension Professionals and Actuaries, said he too is "not optimistic about the future of defined benefit plans. There's a lot of frustration out there, and a lot of expectations that can't be fulfilled."
According to the Federal Re-
serve Board, corporate DB plan assets at the end of 2004 stood at $1.81 trillion, surpassed by both corporate 401(k) plans at $2.66 trillion and individual retirement accounts at $3.38 trillion.
So what should planners tell anxious clients who have pensions?
Above all, don't count on a defined pension plan being there in its present form when you retire, say pension experts and planners who have dealt with the issue.
"You can't rely on employers to take full care of what your retirement needs are going to be," said Mr. Rosen, who also is president of Haddonfield, N.J.-based Stephen H. Rosen & Associates Inc., a subsidiary of New York-based National Investment Managers Inc. "And you have to discount the projections of what you thought you were going to get."
Accordingly, Mr. Rosen said, planners and clients should consider "different scenarios" to determine the extent of the gaps between expected retirement income from a pension and income if there are changes in the plan, and "plan around that."
When Ms. Stenstrom discusses retirement with her client who works for IBM, "we're going to pretend her defined benefits will not be there or will be reduced when she retires. We're going to add more to her savings, and we already maxed out her IRA." Ms. Stenstrom is principal of Bedford, N.Y.-based Bourne Stenstrom Capital Management Inc.
"We're going through financial projections that are based on reality," she added. "Finances are a living, breathing thing, and we're not counting on what may not be there."
Ivory Johnson, director of financial planning for The Scarborough Group Inc. of Annapolis, Md., said that it is critical for pension participants to expect to pay more for health benefits in retirement than they thought they would.
"Whatever you're paying now for health insurance, be prepared to put some zeros after it down the road," said Mr. Johnson, who has advised clients participating in Bedminster, N.J.-based AT&T Corp.'s pension plan, which shifted to a cash balance plan from a traditional plan several years ago.
Pension experts also say that planners and clients need to be informed and up to date about pension plans and be as active as possible about the future of the plan.
"The best thing pension participants can do is become educated," Mr. Dobrow said. "They can also be active within the company and let the employer know what kind of plan they want, and lobby for it."
Mr. Johnson agrees, saying that pension participants need to "stay informed, know what their rights are and know what they can do."
He suggested that planners and clients familiarize themselves with the website of Washington-based Pension Benefit Guaranty Corp. (pbgc.gov) to learn details about different pension plans and to find out what benefits would remain if a company became insolvent.
Mr. Johnson also urged pension holders to join an organization that has "lobbying power" for pension rights, such as Washington-based AARP. "There's safety in numbers and a chance to have some kind of impact," he said.
Nonetheless, neither Mr. Johnson nor his colleagues are optimistic that future retirees, particularly baby boomers, will be able to get by without continuing to work as they get older.
"A lot of baby boomers have a level of expectation for retirement that is far beyond the reach of what is mathematically possible. They're going to have to consider themselves 'semiretired' at best," he said.
"I'm advising my clients in their 50s to ask themselves what they really enjoy doing, and try to make that a second career," Mr. Johnson added. "In effect, they'll be creating their own pension."
In fact, said Mr. Dobrow, one of his clients retired after a career as a schoolteacher in the San Francisco Bay Area.
"She has a 403(b) pension, Social Security, a few hundred thousand dollars in savings and a home, and it won't be enough," he said. "It finally dawned on her that she can never stop working."
Also worrisome, said Mr. Rosen, who has spent considerable time lobbying on Capitol Hill, is potential tax reform legislation that "essentially eliminates incentives for employers to have pension programs. There are some very serious concerns out there right now."
Indeed, the rapid shift away from DB plans, combined with the need for specialized retirement planning, has created demand for the newly launched qualified plan financial consultant designation, said Bunny Wing Fernhall, chief of pension education for the ASPPA.
More than 1,000 financial professionals already have signed up for the credential, she said, and 4,000 more are expected to sign up within a few years. This year, the ASPPA's marketing campaign is targeting financial planners, registered representatives and insurance specialists, Ms. Fernhall said. Next year, she said, the credential will be promoted to both consumers and plan sponsors.