What happens to your retirement benefits when your employer 
faced with financial distress and bankruptcy decides to terminate
their pension plan?  To gauge the potential risk to you of a plan
termination you first need to know what kind of plan you have 
with your company.

Pension plans come in two basic types 1) defined benefit plan, 
where the company promises to contribute enough to the plan now 
and in the future to meet the pension benefits it promised to 
all of its workers, and 2) defined contribution or 401(k) type 
plans where contributions are generally placed into a separate 
account for you as you earn them, thus reducing your risk as 
it relates to a company failure.

The Pension Benefit Guaranty Corporation (PBGC), a government 
entity modeled after the Federal Deposit Insurance Company, 
has the primary responsibility for protecting the more than 44 
million workers who participate in defined benefit plans.  The 
PBGC operates an insurance program designed to maintain payment 
on workers pension plans when their company, usually after 
bankruptcy, terminates their pension plan and there is not 
enough money to pay the promised pension benefits.

Even with the PBGC insurance, however, you may still be at risk 
of losing a substantial part of your pension fund benefits when 
a plan is terminated.  That’s because the law limits the maximum 
in benefits that the PBGC insurance can pay to any one person.  
For pension plans ending in 2004, the maximum guaranteed amount 
is set at $19,973 per year for those who retire at 55 and tops 
out at $44,386 per year for workers who retire at age 65. This 
guarantee amount is even lower if your pension includes benefits 
for a survivor or other beneficiary.

Employees working for companies in financial distress (i.e., 
manufacturers, major airlines), should discuss with their 
financial adviser the idea of taking early retirement and 
requesting a lump sum payment as a means to protect their 
accumulated pension benefits, especially if the present value 
of the total PBGC payments they would receive is much less 
than the lump sum they could get now.

You generally can put all or part of your lump sum into a 
traditional IRA or other qualified plan.  If you have your own 
business you can do "tax-free rollover," to a Self-Employed 
401(k) that allows you to continue to contribute to your plan 
while keeping the flexibility of taking a loan from your 401(k) 
plan.