Retirement Strategies Out of Step, Expert Says : Benefits: Changes by companies reflect a major shift away from the traditional ‘defined benefit’ pension programs to ‘defined contribution’ plans, consultant notes.

Twenty years ago, said Tony Deutsch, the typical worker was a man with a wife who stayed at home with their 2.3 children while he spent his entire career with the same company and retired at the “normal” retirement age.

Not anymore. Today, according to Deutsch, vice president in charge of the Washington office of TPF&C;, a consulting firm, there is no such thing as a “typical employee.”

With the growing diversity in the workplace, more and more single parents, women and minorities are entering the job market, and fewer are making a career with a single employer. The federal government predicts that the average worker will change jobs at least six times and change careers as many as three times before retiring past the traditional age of 65.

Deutsch said few companies are keeping up with the demographic changes that are sweeping through the nation’s work force as they design retirement benefit programs for their employees.

“The underlying premise of most pension plans is that an employee’s retirement income needs are best expressed as a percentage of pre-retirement pay. The problem is that this income strategy was devised for an American worker very different from today’s employee,” Deutsch said.

For most of the post-World War II period, pensions were the sole source of retirement pay from most employers. There were no savings plans, and few companies provided health care for retirees.

The goal of those pensions was to provide an employee with enough money in retirement to allow the same standard of living as when that person was an active worker.

But the advent of tax-free 401(k) savings plans and the proliferation of retiree health benefits have dramatically changed the economic picture for retirees, making the pension an inaccurate gauge of income, according to Deutsch.

As a result, Deutsch said, he is urging clients to “zero-base” their approach to retirement benefits by looking at all benefit programs that would have an impact on their retirement income.

“It may no longer be appropriate to look at employee pension, savings and medical benefit programs separately,” he said. “Instead, it’s time for companies to consider employees’ total retirement needs and how corporate assets can be best deployed to meet those needs.”

Another question that needs to be answered in light of the changing lifestyles of today’s workers is whether married employees should continue to be subsidized by employers as they have been in the past. Should a married person, in effect, be given benefits worth twice as much as those for a single person?

In the health-care area, where the cost of dependent care has become a major expense, employees are already being asked to pick up a greater share of the cost to cover a spouse or child.

To cope with the rapidly rising cost of retiree health care and new accounting rules that require companies to list health-benefit promises as an unfunded liability on their books, many corporations are simply doing away with health-care benefits for Medicare-eligible retirees.

The total-needs approach to retirement benefits that Deutsch talks about reflects a major shift away from the traditional “defined benefit” pension programs to “defined contribution” plans.

In a defined-benefit plan an employer promises a specific level of benefits at retirement regardless of the cost to the company, while in a defined-contribution plan the employer contributes a specific amount toward retirement each year and the level of benefits depends on how much that money will buy.

Most older corporations provide defined-benefit plans, while newer companies prefer defined-contribution plans. Financially, there are advantages to both.

A defined-contribution plan for any kind of benefit means an employer knows at the start of the fiscal year exactly how much money it will cost to provide employee benefits.

But while the gamble for the company with a defined-benefit plan is higher, the savings are apt to be greater. With fewer and fewer workers spending their careers with a single company, employers with defined-benefit plans will probably pay out much less money.

As a result, Deutsch sees a lot of his clients maintaining a mix of defined-benefit pensions and savings plans in which the company makes a matching contribution of some level.

“I see the mix continuing,” he said. But he predicted that defined-contribution plans will become an “equal partner” with the older, more traditional pension approach as employers search for a total benefit approach.