Fewer Ohio businesses are offering defined-benefit pension plans, as employers attempt to reduce future funding obligations and shift retirement liabilities to workers.

Many companies still offer pension coverage, but most now provide defined-contribution plans, such as 401(k) accounts. 401(k) plans often have employer matches and loan provisions, and allow for job mobility and give workers some control over their retirement investments.

But the decline of traditional pensions has transferred more of the responsibility of saving for retirement from employers to workers, and experts are concerned that many Ohioans are unprepared.

Some people are at risk of outliving their retirement savings because they are not participating in their employer-sponsored pension plans, maximizing employer contributions, contributing enough to their accounts or properly investing their savings, experts said.

“People really need to do some homework themselves or ask for the guidance of a professional to pick the right funds,” said Charlie Pool, wealth management adviser with Morris, Pool & Associates in Kettering. “One of the worst things that can happen is someone being older, really healthy and out of money.”

Defined-benefit plans provide guaranteed income to workers after they retire. The amount of the payments usually are based on formulas that factor in salaries and time of service. Under these plans, employers bear the investment risk and will still owe the retirement benefits even if they lack adequate assets to cover the payments. Payments to retirees will be the same regardless of the state of the stock market or how long an employee lives after retiring.

Decline in pension coverage

In Ohio, about 1.6 million people in 2011 were covered by single-employer, defined-benefit pension plans that were insured, down from 1.75 million in 2001, according to the Pension Benefit Guaranty Corp., a federal agency that provides pension insurance to private companies. The vast majority of private-sector pension plans are insured by the agency.

Ohio’s private sector in 2011 had 1,506 single-employer, defined-benefit pension plans, down almost 25 percent a decade earlier, the agency said. Some plans have failed and have been taken over by the agency. Others are frozen and the assets and retirement benefits are not growing.

Defined-benefit plans used to be the primary form of pension coverage in the United States. In 1980, about four in 10 private-sector workers participated in defined-benefit plans. At one time, 88 percent of U.S. private-sector workers with pension coverage had defined-benefit plans, according to the National Institute on Retirement Security.

But traditional pension plans have been on the decline since that time. Last year, about one in five U.S. private-sector workers had access to defined-benefit coverage, according to the U.S. Bureau of Labor Statistics.

Many companies froze or terminated traditional pension plans because they were no longer willing to take on the large financial risks involved in guaranteeing retiree payments, said Olivia Mitchell, executive director for the Pension Research Council and a professor at the Wharton School at the University of Pennsylvania.

With traditional pensions, plan sponsors have to make sure there are enough assets set aside and invested correctly to cover the benefits owed to current and future retirees, Mitchell said. But assets are contingent upon interest rates, which have been low, and the capital markets, which have performed poorly. The amount of money owed to retirees is also increasing because people are living longer.

“Plan sponsors suddenly woke up and recognized there is an enormous amount of risk to the sponsors for offering defined-benefit plans,” she said.

Delphi workers

Many private pension plans do not have the assets necessary to pay retiree benefits, and some companies have filed for bankruptcy or offered buyouts to employees to reduce future liabilities. About 77,000 workers in Ohio in 2011 received pension payments from the Pension Benefit Guaranty Corp., because their plans failed. When plans are turned over the agency, retirees often receive significantly reduced payments. In 2009, then-bankrupt Delphi turned over its pension obligations to the agency, which resulted in pension payments being between 30 and 70 percent less than retirees expected.

The decline of traditional pensions has made defined-contribution plans and individual retirement accounts the primary forms of retirement savings in the United States. In 2010, about 41 percent of private-sector workers participated in defined-contribution plans, up from 20 percent in 1980, according to the U.S. Department of Labor.

Defined-contribution plans, such as 401(k) accounts, specify the level of employer contributions, if any, and that money is put into individual accounts held by workers, the labor department said. The average employer contribution is about 3 percent, and the value of 401(k) accounts come from employee and employer contributions and the rate of return on the money invested over time.

Unlike traditional pensions, which only reward employees who stay with a company for most of their working careers, defined-benefit plans provide portability, said Pool, with Morris, Pool & Associates. He said 401(k) accounts are better suited for the modern workforce because people can switch jobs and transfer the benefits they accrued.

“The days of someone staying somewhere for 35 years and getting a gold watch are gone,” he said.

Participants in 401(k) plans often can control how their money is invested. Many plans allow workers to take out low-interest loans.

But 401(k) plans place all of the risk of poor investment performance on workers’ shoulders, and they lack the same level of retirement security as traditional pensions, said Nancy Hwa, spokeswoman with the Pension Rights Center in Washington, D.C.

401(k) plans force workers to choose whether to participate in the plan, how much to save, how to invest their money and when to withdraw the funds, she said. Workers must also have the discipline to refrain from borrowing against their accounts, and they must decide how to make the money they saved last for the rest of their lives after retiring.

“With 401(k), all of the burden is on the individual,” she said.

Hwa said defined-contribution plans were originally conceived to serve as supplemental forms of tax-protected retirement savings. She said these plans limit the employers’ risks to making contributions to the plan, and the investment risk in those plans falls entirely on the employees. This means if the asset values go down, employees can suffer the loss of their retirement savings. She said forcing individual workers to select and monitor their investment portfolios is inadequate to assure that they will the savings they need for a secure retirement. Another concern is that some people do not contribute enough to their savings, while other people do not contribute at all.

About 21 percent of people covered by 401(k) plans do not participate in them, and some plan participants do not maximize their employer match, according to an analysis by the Center for Retirement Research at Boston College. In 2010, the median 401(k)/IRA balance for households approaching retirement was $120,000, which is much lower than people would suspect, the center said. Most households do not have financial assets other than pension plans, and if households purchased a joint and survivor annuity, monthly payments would amount to $575.

Many Americans lack the financial knowledge needed to make good investment decisions with their pension accounts, experts said. They recommend that workers carefully research their options or consult with financial advisers.

“It sure was nice knowing you would have a guaranteed pension someday and you knew exactly how much was coming in each month,” said Robert Russell, CEO of Russell & Company, a financial-advising firm in Dayton. “Our stance is you can still have the same thing if you work with the right adviser and if you take steps to save.”

Mark Burns, 46, of Miami Twp., said he used to work for Delphi, and at one time, he had both a traditional pension and a 401(k) account. He has since switched jobs, and the mechanical engineer now has only a 401(k) and IRAs to rely on.

But Burns said he would rather be in charge of investing and managing his retirement savings than count on a company remaining solvent and putting enough aside for retirees. He said he trusts his own financial judgment and has more confidence in his own decision-making than he does in the traditional pension system, which is risky in these uncertain economic times.

“If I am responsible in investing my savings and do what I need to do, it will be there,” Burns said. “Companies nowadays come and go, and you never know for sure if you will have a pension or not.”