by Paul Petillo

It used to be that if you had a pension, as many union workers do, you were safe inside the wall of financial protection that a defined benefit plan offered.  You could, for the most part, ignore the world of investing, ignore the turmoil in the markets and be on your merry way without a care about your retirement future.  That promised pension would be there.

But somewhere along the line, things changed.  What was once seen as the economic equalizer for millions of union employees is now under pressure.  It should have come as no surprise that the same forces that drew investors to take riskier choices were many of the same investors in charge of your pensions.  So when the marketplace took a hit, so did your plan and with it, some of what you thought was so secure.

There are very pensions in the country that survived in tact.  There are numerous reasons why those few did but the one that stands out is luck.  These plans had the good fortune to be focused on the fiduciary responsibility but for the most part, it was simply being in the right place at the right time.

Because of the "right place", those pensions has more of chance of recovering your pre-2007 portfolio values than you might think.

The Center for Retirement Research at Boston University looked at investors who use 401(k) plans and wondered if the playing field was even for all investors.  (I mention 401(k) plans in part because many union employees have access to them and because pensions invest in similar ways.  The differences beyond that are distinct. Pensions are not portable, are not directed by you, and are built up over time based on years worked; 401(k) plans are portable, the investment decision is yours to make and the success of the plan depends on those decisions.

Pension administrators are faced with the same problems as individual investors.  The CCR looked at the ability of different age groups to recover from the downturn much the same way an actuary might look at your pension to determine tis overall health.  They describe the various groups in a recent report as Gen Xers (30-year-olds),  Late Boomers (40-years-old), and the Early Boomers (50-years-old).

The Early Boomer has been invested in their pension during the heyday of the stock market, or what is referred to in the report as the “run-up from 1982-2000″, and have benefited greatly because of it. In terms of real retirement, they are far better off because of those years than their younger cohorts may possibly ever be.

The report by Alicia H. Munnell and Jean-Pierre Aubrey understands that everyone suffered the financial consequences of the crisis. But the thinking that the younger investors would most likely be the beneficiaries of the time element and that middle aged investors would benefit from higher contributions may not be true. But pensions are different than 401(k) plans just as they are the same.

While in a 401(k), the authors of the report assumed that the younger investor would not have lost much in terms of any real accumulated portfolio balance and the middle aged investor would have had more but may not have had accumulated enough to declare a disaster.

Both groups were hurt but not as badly as their older cohorts, the Early Boomers. Or at least they thought.

This, they say, was why, the people who lost the largest portion of their retirement were given the greatest amount of airtime and print in the news. They may have lost a sizable chunk of their retirement accounts but there was something different about those assets in the portfolio.

The authors realized, this group was so much farther ahead in terms of real portfolio gains because of that run-up that they were actually better off even if they had less time to recover fully the value of those accounts. they were so far ahead that to reach parity with the oldest investor, the Late Boomers would have to attain a 13.2% gain in their portfolio – year over year. The Gen Xers would need only gain 11%.

The authors don’t suggest it is impossible. They do think it is unlikely.

So here we have the Early Boomers with the run-up in their 401(k) portfolios that may not ever repeat itself. And because they were invested in a more balanced way when the crisis hit, may have come close to where their account balances were at the end of 2007. And here is where pensions diverge.

All of the people enrolled in a pension are affected by the downturn.  Many of the older workers felt the benefits of those run-up years while younger workers did not.  The contributions were in line with what the overall performance of the plan was at the time and now are faced with the realities of the market place.  Early retirement benefits, pensions increases or other adjustments to the plan have changed the stability of the pension for the youngest worker.  It has also upset the plans that may have been made by the Late Boomer as well.

We also know that downturns of late are increasing in frequency [seems like every five years or so] and they seem to be getting more severe. We do know that recoveries are quicker than they were in the past. Does this mean that there is a chance for the Late Boomers or Gen Xers to get to where their older cohorts are?

Yes and no. The older workers among us will still be able to retire and because of those generous years, will do so with a reasonable amount of replacement income.  But the rest of us face a retirement dilemma.

The battle you will wage will be counterintuitive to what you really want to do. You must learn to invest outside of your pension.  This is where I intend to help.  Some of you will have access to a pension employee's 401(k), something your employer may offer with or without the matching contribution.  You may have to use an IRA instead.

You will find yourself doing what many investors are currently doing even if you consider yourself experienced.  We will focus on how to use these tools to increase your future financial stability.  We will navigate you through the choppy waters that investing has become and help you struggle with the behaviors that make that process more difficult than it has to be. We will look at not only where and how but why you should invest, how to grapple with debt and increase your chances for a more secure retirement.

You will need to do more than simply rely on your pension.  Even though your pension may be there for you in the future and it still provides an economic incredible leg-up as compared to your non-pension cohorts, the real chances of retirement in the way you want it to be is in your hands.