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Look ahead to pensionless Golden Years

More than ever, retirees are going to be on their own.

Verizon Communications last week became the latest company to scale back its retirement benefits, freezing its pension plan for salaried workers and saying it no longer will allow managers to receive service credits toward retiree medical benefits after July.

Instead, Verizon said it will increase its match on the contributions those salaried workers make to their 401(k) plan, saving $3 billion over 10 years.

Those Verizon employees are the latest to feel the pinch from companies -- even healthy ones -- looking to keep a lid on costs by freezing or cutting pension plans. Instead, the focus is on 401(k) plans that put all of the risk and most of the responsibilities for funding retirement on the backs of workers.

"You're just seeing a massive landslide, a wholesale switch from [pension] plans," says Lawrence Kavanaugh, vice president of Pension Services of WNY in West Seneca. "[Pension] plans just create legacy costs that employers can't sustain."

Last year, 71 companies in the Fortune 1000 froze or terminated their traditional pension plans, a vastly accelerated pace from 45 in 2003, 39 in 2002 and 34 in 2001, according to a study by Watson Wyatt Worldwide, a human resources benefits consulting firm. Just 20 percent of all private-sector workers are covered by a traditional pension plan today, down from 27 percent in 1984, according to the Employee Benefit Research Institute.

"In today's environment, companies don't want to commit to someone for 40 years," Kavanaugh says. "They don't know what they future will bring."

At the same time, 401(k) plans are playing a much bigger role in retirement savings. Nearly 58 percent of U.S. workers who are part of a retirement plan now rely on defined contribution plans such as 401(k)s as their primary way of funding their retirement, more than double the level in 1988. Likewise, just 41 percent of those workers say pensions are their main retirement plan, down from 57 percent in 1988, EBRI says.

What it means is that workers are increasingly on their own in funding their retirement. That means saving more, even as energy, college tuition and medical costs skyrocket. It also means learning about investing and then making good decisions with your money. Momentum also is building to automatically enroll workers in a firm's 401(k) plan, rather than making them sign up for it.

"You've got to cut back on your consumption and spending and save for yourself, because the safety net has a lot of holes in it," says Joseph Curatolo, the president of Georgetown Capital Group in Williamsville, which has about 500 Verizon workers and retirees among its clients. "Corporate America is saying, " 'We'll take care of you, but in a global, competitive environment, we can't take care of your entirely. You're going to have to chip in.' "

The trouble is that workers haven't done a good job preparing for their own retirement. A quarter of all current retirees rely on Social Security for all of their income, while two-thirds depend on Social Security as their primary source of retirement income, EBRI says.

Most financial planners say retirees will need about 75 percent to 100 percent of their preretirement income. But a Fidelity Investments study of Americans earning at least $20,000 found that the median retiree can replace only 59 percent of their earnings, including Social Security, pension and savings. EBRI says the average 401(k) balance for workers in their 60s with more than 30 years of service is $168,000, which won't last long when someone who retires at age 65 can expect to live another 18 years.

What it all means is that, for many workers, including some Verizon managers, retirement is a dream that will have to wait.

"It's just a pounding," Curatolo says. "They're going to be working longer than they think."

e-mail: drobinson@buffnews.com

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