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Private retirement plans
require vigilance, discipline

IF you follow the news -- or even if you don't -- you're probably aware that the country is debating the future of Social Security. However, this discussion, while important, may be obscuring another key issue -- namely, that many people are finding their employer-sponsored retirement plans are falling short of providing the expected level of benefits.

Clearly, this is a huge problem for retirees, and a scary prospect for workers. Consequently, if you are in this second group, you will want to act now to bolster your retirement savings. Before we look at some moves you can make, let's review two factors behind the current concerns in company-funded plans:

» Economic pressures: For a variety of reasons, pension plans are becoming more expensive for companies to fund; consequently, some plans go underfunded. As long as a company remains solvent, its pension plan, even an underfunded one, will pay out full benefits, but the financial pressure on the company to fully fund the plan is enormous, and can cause a drag on earnings. If companies are in danger of insolvency, they may not fund their pensions at all. When a company terminates its plan, participants still won't lose their benefits, but they will lose out on potentially valuable future accruals, which typically correspond with age and length of service.

» Switch from "defined-benefit" to "defined contribution." In 1979, more than 80 percent of workers covered by a company retirement plan had a "defined-benefit" plan -- that is, a traditional pension that paid monthly benefits based on years of service. But by 2001, this percentage had dropped to just over 40 percent, according to the Center for Retirement Research at Boston College, as companies began offering "defined contribution" plans, such as 401(k)s. This shift from defined benefit to defined contribution means that employees are now much more responsible for planning and saving for their own retirements.

You cannot control "big-picture" events, such as a plan termination or a switch to another type of retirement plan. You can take steps boost your retirement savings inside and outside your plan. Here are a few ideas:

» Prioritize and quantify retirement goals: Whether you plan to spend your retirement years traveling, volunteering, pursuing hobbies or even opening a small business, rank your retirement goals in order of importance and determine how much they are likely to cost. You may want to get help from a qualified financial professional.

» "Max out" on your IRA: Try to fully fund your Roth or traditional IRA every year. A Roth IRA grows tax-free, provided you meet certain conditions; a traditional IRA's gains and earnings grow tax deferred.

» Consider delaying early retirement: If you enjoy your work, consider extending your career by a couple of years, or take advantage of "phased retirement." You'll be able to contribute more money to your employer-sponsored retirement plan.

» Increase 401(k) contributions annually: Try to increase your 401(k) contributions each year, especially if you get annual raises.

» Don't overload on company stock: Avoid putting too much company stock into your employer's retirement plan; you could incur significant risk if your company goes through some ups and downs. Most financial experts recommend limiting company stock to 10 percent of your retirement plan assets.

You can't always predict what will happen with your employer-sponsored retirement plan. But by following your own savings and investment strategies, you can go a long way toward achieving the retirement lifestyle you've envisioned.