Company Pension Limitations

Once upon a time, employers and employees shared a lifelong relationship. It was not uncommon for individuals to spend the majority of their adult lives before retirement working for the same employer. For those who managed to get into a good company, employees knew that, at the end of their 30 years of faithful service, they would get a gold watch (or similar trinket) and company pension benefits that would help support them during retirement. Retirees combined their pensions with Social Security benefits and personal savings and lived happily ever after. The end.

This is not only the end to a once-common story, but also the end of an era. Today, employers and employees do not bond for life, and frequent job-hopping occurs. This situation has increased the importance of retirement planning for many employees.

For example, consider these Labor Department statistics for the period from 1978 to 2008:

The Labor Department also reported that the average person born in the latter years of the baby boom held 11 jobs from age 18 to age 44, with 60 percent of those jobs held from ages 18 to 27. That's a far cry from times past.

Not only is the time spent with one employer shorter, the nature of retirement benefits being offered has changed as well. Due to employee turnover and to funding and administrative costs, employers no longer want to be locked into providing expensive guaranteed pension plans. At the same time, employees are looking for retirement plans that are portable and can go with them from job to job.

Greater job mobility and portability of retirement benefits do not come without a price, though. As a result, employees bear a much greater burden of providing the funding for such benefits. Employees also lose the security of a guaranteed company pension plan and gain the risk that they will not have enough money for retirement.

So when considering where your retirement income will come from, don't breathe a premature sigh of relief just because you participate in your company's retirement plan. Learn what type of retirement plan your employer offers. Then, be prepared that in all likelihood you will need additional sources of income to retire.