SUNDAY, MAY 16, 2010

PERSONAL FINANCE

The latest blow: Smaller payouts for new retirees

by Laura Cohn

W

hen Ken Hollis finished college in the mid-1970s, he accepted a job with the division of General Motors that made auto parts and worked there for 23

years. When the division was spun off as Delphi, workers were told that their pensions would carry over to their new employer, Hollis says. So he stuck it out and worked for Delphi for nine more years. Although Delphi filed for bankruptcy in 2005,

Hollis thought his benefits would be protected. And even when he was forced into early retirement nearly two years ago, at age 54, as a result of the downturn in the automotive industry, he didn’t worry. He should have. Early last year, Delphi announced that it was terminating health- and life-insurance benefits for retirees. Then GM filed for bankruptcy, jettisoned the pension plan it managed for Delphi’s white-collar retirees and turned the plan over to the Pension Benefit Guaranty Corporation, the federal agency that insures private-sector defined-benefit pensions. If a company’s pension plan becomes underfunded and the company cannot make up the shortfall, the agency takes over and continues to pay retirement benefits up to the limits set by law, which are adjusted each year. In mid-February, Hollis was notified that his monthly pension payment would shrink by 38 percent, or more than $1,100 a month. For plans taken over by the agency in 2010, the

benefit cap for workers who retire at age 65 is $54,000 a year. Those who retire younger, such as Hollis, get less. “I worked according to the rules,” Hollis says. “Now that the game is over, they’ve changed the rules.”

A growing trend

Hollis is not alone. For many of the 15 percent of

private-sector workers covered by defined-benefit plans, the guaranteed pension is no longer guaranteed. Because of the 2007-09 stock-market collapse and the inability of some recession-scarred companies to sufficiently fund their pension plans, the agency took over 129 plans last year— a 74 percent jump from the year before. And 2010 is shaping up to be even worse.

Through the first six months of the agency’s current fiscal year, it took over 85 plans. It has taken over so many plans with looming obligations to future retirees that its own deficit approached $22 billion last year. Even companies that aren’t filing for bankruptcy

f you thought earning a fat pension in a public-sector job was a sure thing, think again. According to an analysis by the Pew Center on the States, state and local pension plans are operating under a deficit of at least $1 trillion. A separate report on 125 state plans by Wilshire Consulting found that the ratio of assets to liabilities — the funding ratio — of state pension systems slipped to 65 percent in 2009 from 85 percent in 2008. How did this happen? Simply put, the states

I

ILLUSTRATION BY TIM GRAJEK FOR THE WASHINGTON POST

—including some of the best-known names in corporate America, such as Kimberly-Clark, the maker of Kleenex, and 3M, which manufactures Post-it notes — have trimmed their pension obligations for employees or new hires. More than 100 major companies have shut their pension plans to new workers, frozen benefit accruals for current employees or terminated their pension plans since 2006, according to the Pension Rights Center. What’s the take-away for the average American

worker? If you are counting on your traditional pension to cover your expenses in retirement, you might need a backup plan. The onus is on employees to fill the gaps created by employer cutbacks. They are more likely to be affected by pension cutbacks than most younger workers, who were never covered by defined-benefit plans. If you’re 50 or older, you can take advantage of catch-up contributions that allow you to stash up to $22,000 in your 401(k) or similar employer-based retirement plan in 2010 — $5,500 more than younger workers.

The breakdown

The wreckage piling on top of workers is only

partially the result of the recent economic downturn. For years, some companies failed to squirrel away enough cash to pay the obligations they promised to current and future retirees. Those low contribution levels were further compounded when the stock market tanked. This year, corporate pension plans will have enough cash in their accounts to cover only 92 percent of their obligations, on average, down from

111 percent in 2009, according to Mercer, the workplace-consulting giant. Even more worrisome is that more than one-third of the plans Mercer surveyed have funding ratios below 80 percent — a crucial level that can trigger restrictions on lump-sum payouts to new retirees. To get their plans back on track, Mercer estimates that companies will have to contribute 400 percent more cash this year than in 2009.

Payout restrictions

Your plan’s funding level could affect your

payout choices. If your plan offers a lump-sum payment option and it is less than 80 percent funded this year, you will be allowed to take only half of the benefit as a lump sum. The balance will be paid in monthly installments or as a deferred lump sum when the plan is at least 80 percent funded again. If your benefit is worth less than $5,000, you may still take a lump sum. If you are planning to retire with a lump sum in

2010 (and your company wasn’t restricted in April), submit your paperwork well before the Oct. 1 deadline. “If your plan is close to the edge, make sure you get paid your lump sum by early to mid-summer,” says Ethan Kra, Mercer’s chief retirement actuary. Once a plan is deemed to be under 80 percent funded, payout restrictions kick in immediately. The worst-case scenario: A company’s pension plan drops below 60 percent funded, barring new retirees from receiving any lump sum (until the plan regains its footing) if the value of their pension benefits exceeds $5,000.

—Kiplinger’s Personal Finance

To compete with cellphones, these cameras try to do it all

Y

ou could forgive your digital camera for feeling some of the same anxiety a

film camera might have suffered eight years ago. Just as the 35mm model of 2002 was threatened even by the limited capabilities of contemporary digital cameras, today’s point-and-shoot digital models risk being displaced by the cameras in many new smartphones. Yes, a phone’s camera cannot

match the resolution of even midrange dedicated cameras. It’s also likely to trip on high-contrast scenery, leaving purple fringes at the boundaries of dark and light areas. But a phone’s already something that most people carry everywhere. And any Internet-connected phone will let you share pictures on the go. What can digital cameras do

to stay ahead? Two new high-end models,

Panasonic’s DMC-ZS7, $399.95, and Samsung’s HZ35W, $349.99, try an all-of-the-above approach. Each offers zoom lenses with wide-angle and telephoto reach, Global Positioning System receivers to “geotag” photos, high-definition video recording, a choice of point-and-shoot or manual modes, and a bundle of in-camera editing tools. Some of these bonus features

even justify the high prices of these cameras. The most unambiguous

benefit comes from the powerful zoom lenses on these two: 12x on the Panasonic, 14x on the Samsung. From three tiers above the first-base line at Nationals Park, each camera could easily zoom in to fill most of the frame with the batter, the catcher and the umpire. (Their optical image stabilization systems then kept the shot steady.) Or I could zoom all the way out to capture the entire span of the outfield, plus a generous spread of seats on either side. Yet each camera measures about 1.3 inches thick with its lens retracted, compact enough for many pockets. The benefits of GPS capability

aren’t as clear. All cameras suffer a performance lag compared with phones, which can use nearby wireless signals to approximate their position quickly. (Eye-Fi’s Explore SD Card, which records nearby WiFi signals for later matching up with a database of WiFi

Cameras still have a

comfortable lead on phones in terms of video recording, but their real competition there isn’t phones anyway — it’s Flip camcorders and other simplified video devices.

ROB PEGORARO

Fast Forward

signals , worked faster for the same reason.) Without that acceleration, a loaner Panasonic model needed as long as 10 minutes to find itself, and it sometimes mistakenly tagged photos with an earlier location. At other times, it needed only a minute to fix its position. The Samsung lent by the company’s PR department exhibited a different issue: Its GPS never worked at all. The onscreen indicator never turned from red to green, no matter how long or where I tested it. A Samsung representative said the company hadn’t heard of this issue, but users on the popular Digital Photography Review site reported the same problem. Weirdly enough, in the Samsung’s map-viewing mode GPS did appear to work, placing me within a few blocks of my spot in downtown Washington. The Panasonic can also set its own clock from the GPS signal, but only if you click through several settings menus. The Samsung can’t do that. To use these geotags — say, if you want to remember what you were looking at a year after the vacation — you will need a program that reads them. Apple’s iPhoto and Google’s Picasa can do that; Microsoft’s Windows Live Photo Gallery won’t. These cameras also provide dozens of picture-taking modes: 29 scene options on the Panasonic, 13 on the Samsung (including presets for sunset and dawn photography). But the most useful mode on each is a fully automatic option that has the camera pick the right mode based on the scenery — for example, switching to macro when you close to within a few inches of a subject. These models also offer numerous in-camera editing functions, for which I see no point. As long as you have to copy the photos to a computer to share them, why not use a regular program there?

So although the Panasonic and the Samsung recorded some decent, sort-of high-def video (the former’s looked a bit sharper and brighter), copying those clips to a computer for editing and sharing was a lot more complicated than it would have been on a Flip. It didn’t help that the Panasonic stores some video clips in a folder labeled “PRIVATE.” Both cameras also commit unnecessary usability fouls. Each comes set to beep obnoxiously every time you do anything and use proprietary USB connectors. The Panasonic’s settings menus are woefully cluttered. The Samsung can’t automatically rotate pictures taken holding the camera sideways. Even with those glitches, these cameras do verify that the simplest way to compete with

didn’t make big enough payments to their pension plans, they failed to squirrel away enough money to pay retiree health benefits and, perhaps most egregious, they increased their benefits without figuring out how to pay for them. Pew’s $1 trillion figure — tallied through the end of the 2008 fiscal year — is conservative given that it doesn’t capture the stock-market losses incurred in the second half of that year. To help close the gap, some states are scaling back their retirement plans. According to Pew, 10 states have curbed benefits to new workers or raised the retirement age. Nevada, for instance, changed the formula used to calculate pension benefits for those hired after Jan. 1 to provide a lower payout. It also raised the retirement age for public workers from 60 to 62, starting this year. Another 10 states — including Iowa, Nebraska and New Mexico — boosted employee contributions. Workers are also contributing more to the health-care plans they’ll get once they exit the workforce. New state workers in Kentucky, for instance, must now put 1 percent more of their paychecks toward their retiree health plans. The outlook is grim. “If pension systems continue on the course they’ve been on, the bite out of state budgets will get bigger,” says Katherine Barrett, consultant to Pew. Unlike the federal government, which controls the printing presses and can run huge deficits, states must balance their budgets. For states with severe deficits, that could mean an increase in taxes, a reduction in public services or both.

— Kiplinger’s Personal Finance

Less green from state pension plans in the red

by Laura Cohn

KLMNO

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More from Kiplinger

Go to www.kiplinger.com for more analysis.

Finding a pared-down smartphone service deal

Q: I want a smartphone that can open my Office files and play music. Can I get one with- out having to pay $30 a month for data services I won’t use?

A: Good luck buying such a thing new from the major wireless carriers; the phones they sell with those capabilities require signing up for voice-and-data bundles that cost around $70 a month. But if you buy a used

ROB PEGORARO/THE WASHINGTON POST

The Panasonic DMC-ZS7, top, and the Samsung HZ35W: two multitasking digital cameras.

phones is — surprise! — to take better pictures. But that will work only if we haven’t already been conditioned to accept blurry, unfocused cameraphone shots as the real thing.

robp@washpost.com

Living with technology, or trying to? Read more at voices.

washingtonpost.com/ fasterforward.

smartphone, you may be able to take that to a carrier and get only a voice plan — depending on the phone and the carrier. At one extreme, AT&T Wireless requires data service on even used smartphones, wrote spokeswoman Alexa Kaufman. At Sprint, the trick would be to buy a phone that Sprint hasn’t sold with an “Everything Data” plan requirement. But the carrier doesn’t seem to have a list of phones meeting that requirement. Asufficiently old Palm Treo or Windows Mobile Sprint-compatible device could work, but check with Sprint first. At Verizon Wireless, you’d need a smartphone “launched prior to

November 2008,” spokeswoman Melanie Ortel wrote. T-Mobile has the most liberal

policy. Its “Even More Plus” plans, designed for people who bring their own devices, cost $10 less than its regular plans, because they don’t need to cover the subsidies that lower the price of most new phones. Spokesman David Henderson said voice-only Even More Plus plans are available even if you bring a model T-Mobile sells today. So instead of

Dumpster-diving for an antique Palm, Win Mobile or Nokia S60 smartphone, you could get a new Android device. In any of these scenarios, remember that going online by mistake can incur per-kilobyte charges that might make interna- tional-roaming fees look cheap.

Rob Pegoraro attempts to untangle computing conundrums and errant electronics each week. Send questions to The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or

robp@washpost.com. Visit voices. washingtonpost.com/fasterforward

for his Faster Forward blog.

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