Dish It Out

The traditional pension plan has been getting weaker for decades. Defined benefit pensions, in which you collect retirement checks from a company plan based on how long you worked there and what you earned, covered 41 percent of private-sector workers in 1978. Today, the figure is 21 percent-and falling fast. The Pension Protection Act of 2006, despite its white knight of a name, probably sounds the death knell of the traditional plans altogether. Soon enough, only government employees and a smattering of union workers will have any hopes of the organization taking care of them in old age.

On that count, this year's pension reform law does help. In the defined contribution retirement plans that are increasingly the norm, contribution means you have to put money into the kitty. But nearly one-third of the employees with access to a 401(k) plan don't contribute; those who do usually fail to put in enough to reach their retirement goals. So, the new law encourages employers to automatically enroll workers in a 401(k) plan unless an employee specifically opts out. The opposite is the case now: You have to opt in. That change alone will push 401(k) contributions significantly higher.

But involuntary enrollment won't force people to bump up their contribution amounts. So the new law also gives employers an incentive-by creating a safe harbor against discrimination claims by non-highly compensated employees-to automatically increase workers' contributions each year, from 3 percent of salaries in the first year to 6 percent after year four. The law also encourages companies to match employee contributions, which gives people another reason to participate. None of the changes are imposed on businesses, but they offer opportunities for entrepreneurs to take new tax breaks and redefine their retirement plans.

Consider the pension reform a warning. Take the time to increase your own retirement savings, and keep increasing the amount each year. It beats a hellish retirement, right?

Scott Bernard Nelsonis a newspaper editor and freelance writer in Portland, Oregon.