That’s the kind of unhappy choice that is slowly driving the nation’s traditional pension system out of business. Last week the government’s Pension Benefit Guaranty Corporation reported that at the end of 1992 50 major companies were collectively $38 billion short of the amount required to be able to pay all promised benefits if they go out of business. Prominent among them were such household names as Westinghouse, Honeywell and Woolworth. For most Americans, though, underfunding is no problem; three quarters of the nation’s 67,000 federally insured plans have more than enough assets to meet their obligations, and most of the rest don’t need much to bring their plans up to snuff. If they fail, the PBGC will keep the checks coming.

The risk facing most workers is far different: corporate America is losing its taste for the guaranteed pension. In its place, companies are moving to plans that leave workers responsible for paying part of the cost and managing their own investments–and raise the prospect that those who don’t join up or who make poor choices will come up short in retirement. “There’s a doubleedged sword,” says Kasey Reese, 33, who works for Ameritech in Chicago. “You have control over your investment future, but it requires you to educate yourself.” University of Pennsylvania pension expert Olivia Mitchell has a similar worry: “We’re all going to have to be little financial wizards.”

Underfunding of traditional pension plans is one of those rare problems that Washington may address before it gets serious. A Clinton administration proposal, unveiled in September, would finally crack down on companies that don’t put enough money into their pension plans, forcing them to pay far higher premiums for PBGC insurance. It would also close, although not eliminate, a gaping loophole that lets companies and unions negotiate higher pensions even if the fund is short of money; instead of having up to 12 years to kick in enough money to fund the increases, the company would have only five years. If some version of the Clinton program passes Congress, the risk that taxpayers will have to bail out the pension insurance fund will be much lower.

But the government’s pension insurer can’t protect against the gradual demise of the traditional pension plan. These longstanding plans, known as defined-benefit plans because they promise a guaranteed monthly benefit to workers who reach retirement age, are in growing disfavor. Although defined-benefit plans control more than $1 trillion of assets and cover-28 million current workers, they are quickly losing ground to plans that don’t ensure specific amounts of pension. These “defined contribution” plans were the main retirement program for upwards of 13 million workers by 1987; no up-to-date figures are available, but by the turn of the century they are likely to displace traditional pensions as the most common basic retirement plan. The new favorite is the so-called 401(K) plan, under which the employer may match each worker’s contributions up to a specific percentage of salary, leaving the worker to decide how to invest the money. The 401(K)s started out as a supplement to traditional pensions, but now “employers are beginning to shut down defined-benefit plans and use 401(K)s as a substitute,” says economist Leslie Papke of Michigan State University.

Why are traditional pension plans on the outs? Shifts in the job market play a big role. Manufacturers, which are far more likely to offer pension plans than other companies, have been cutting their work forces. Most new private-sector jobs are in service industries, where pensions are less common–and at smaller companies, which are less likely to offer defined-benefit pensions than large employers. Laws intended to protect pensioners have reinforced this trend; analyzing whether there’s enough money can run as much for a plan with 10 workers as for one covering 1,000, making the cost prohibitive for smaller firms.

Now, though, even large employers are going without traditional pensions. While thousands of defined-benefit plans have been terminated, only a handful of companies in the entire country are starting new ones. The highly publicized woes of LTV Steel and Trans World Airlines, where huge pension obligations became major obstacles to restructuring, are a red flag to fastgrowing firms that in the past would have started pension plans to prove that they’d made it into the corporate big leagues. “There is a funding obligation regardless of the performance of the company,” explains John Coghlan of Charles Schwab & Co., an 18-year-old discount brokerage that offers no traditional pension. Under Schwab’s 401(K) plan, which 85 percent of its workers have chosen to join, the company matches workers’ retirement contributions but has no further commitment; if a worker’s investments underperform or if the worker withdraws the money before retiring, Schwab is not on the line.

The steady demise of corporate loyalty has accelerated the flight from traditional pensions. Employers obsessed with downsizing no longer want workers to hang around for 30 years–the defined-benefit plan’s main objective. A growing number of workers feel the same way. Phil Wilson, senior vice president at software house Oracle, says most of his company’s 4,369 U.S. employees “expect to be moving in the next several years” and don’t want a traditional plan. No wonder: for a worker facing frequent job changes, the standard promise of a pension after 30 years of service is nearly worthless. Most Plans tie benefits to wages and don’t grant cost-of-living increases, so someone who leaves a job at age 35 will find that inflation has decimated the value of benefits at retirement decades later.

Although 22,000 pension plans were discontinued between 1990 and 1992, almost all of them were small. So far, “we have not seen any erosion of defined-benefit plans among large companies,” says PBGC spokeswoman Judith Bekelman. But that may be starting to change. Most big companies aren’t expanding their traditional plans; improved retirement benefits will come from supplemental plans that don’t guarantee a pension amount. And companies such as First Interstate Bancorp, which has 28,000 employees and a fully funded retirement plan, are reassessing whether a standard pension is what workers really want. The alternative, says executive vice president Lillian Gorman, would be for the nation’s 14th largest banking company to contribute more to its 401(K) plan which employee surveys show to be highly popular. “We’re not being driven by costs,” Gorman says. “We want to look at the strategic work-force issues.”

For many workers that shift represents a turn for the better. With schemes like the 401(K), they can take their retirement-plan assets with them from job to job and invest the money pretty much as they please. If they join the plans and invest wisely, they’re likely to end up with far more retirement income than a traditional pension plan could ever offer. But those are big its. About one third of people whose employers offer 401(K)s forfeit the benefit by refusing to put in their own money–and most of the rest favor investments that look rock-solid but offer low returns. What happens when they hit retirement age? If past is prologue, they’re likely to ask Washington to make sure they have the income they need. Their demands will make the PBGC’s problems look puny by comparison.