Make your pension count
Use these three tips to evaluate your benefits plan and safeguard your retirement.
By Janice Revell

(FORTUNE Magazine) – PICK UP A NEWSPAPER OR MAGAZINE THESE days, and the odds are pretty good that you'll come across at least one article about the precarious state of corporate pension plans. But traditional, defined-benefit pensions remain a very big deal for millions of employees. In fact, some 23 million active workers--including employees of more than 70% of FORTUNE 500 companies--continue to be covered by traditional pensions. With that in mind, I decided to ask Steve Vernon, a vice president with human resources consulting firm Watson Wyatt and author of the retirement guide Live Long and Prosper!, for a few tips on calculating the value of a pension to your personal bottom line.

●Do some (basic) math. People tend to undervalue their pensions, says Vernon, for one big reason: It's difficult for people to get their arms around what they're really worth. In a typical plan, benefits are based on years of service and salary--for instance, an employee may accrue a pension benefit equal to 1.5% multiplied by his years of service, and multiplied again by his average salary during the last five years on the job. So after ten years of service, a worker making an average of $100,000 a year may have racked up a retirement benefit of $15,000 annually for the rest of his life.

To calculate the present value of a pension, you need to estimate a host of factors, including expected interest rates during your retirement and how long you'll live. Vernon likes to use a quick-and-dirty method instead: Multiply your annual payout by 20. In the above example, that would give you a value of about $300,000.

Thinking of finding a new job? Here's another handy rule that Vernon likes to use: If you leave a job that offers a traditional pension plan for one that doesn't, to break even you'll need to make roughly 10% to 15% more each year, invest every penny of that difference, and achieve at least a high-single-digit return annually for the rest of your life.

●Check the health of your plan. Is your pension safe? If your company passes the obvious tests (profits aren't plummeting and the stock isn't tanking), Vernon suggests you get a copy of the most recent annual report; in the footnotes to the financial statements, the company must disclose financial details on pension plans. Compare the plan's assets with the so-called accumulated benefit obligation. If the assets are close to or exceed that number, "the plan should be okay," says Vernon. "It's only if the assets are 15% or 20% below that that you might want to start worrying."

●Use your pension as a bargaining tool. If you get an offer for a job with no pension, use your existing benefits when talking salary. If you're going in as a CEO or a top exec, you might be able to negotiate a so-called supplemental executive-retirement plan, in which a company can simply credit you with years (or even decades) of extra service. But even if you're not in that elite group, don't fret. "You can still use your pension as good leverage--just bargain for something else," says Vernon. In today's strong job market, he adds, employees are regularly asking for--and getting--signing bonuses to make up for at least part of their lost pensions. ■