Ellen Schultz Reveals How Companies Profit From Employee Pensions

Q. Defined-contribution plans, such as 401(k)s, seem to be replacing defined-benefit plans. What are the pitfalls of this trend?

A. The problem is that almost nobody can possibly save enough to retire on, even if they're diligent and save steadily throughout their career. There are so many risks: investment risk, high fees, participant risk. People very often can't afford to put in a large percentage of their pay.

Q. Is there a role for government in curbing the abuses you describe?

A. Regulations that currently exist [need] to be enforced. One of the primary bedrocks of pension law is that pension plans and retirement plans are to be managed solely for the benefit of the participants, not for the benefit of companies or the financial-services industry. People should keep reminding their employers that these plans are for them.

Q. What else?

A. There are also plenty of loopholes that need to be closed. Companies are not supposed to discriminate in favor of highly compensated employees in pensions and 401(k)s, but there are so many holes in the rules that allow companies to do exactly that. Something that was more universal — perhaps a government-sponsored plan — would probably be one of the few ways that you could have some kind of automatic savings taking place.

Q. What can individuals do to protect themselves?

A. It would be a good idea, during any kind of buyout, to very closely scrutinize the documents. And realize your employer can promise you health care or a certain level of pension — but if it is not spelled out in the technical plan document, you can't count on it.

Q. And if pension problems arise later?

A. In many cases, people can get help without cost. A critical first step is to contact the Pension Rights Center in Washington, and see if there's a counseling project [nearby]. They might be able to get a volunteer actuary to help with their problems.

Julia M. Klein is a cultural reporter and critic in Philadelphia and a contributing editor at the Columbia Journalism Review.