In the 19th century, an American would work until the ripe old age of 40 or so, and then permanently retire -- that is, he would die. Four decades was the average life expectancy in the U.S. back then.

As the 20th century approached, however, more people were living into their 60s and beyond. Yet America was still an agrarian society and fast becoming an industrial one (and not yet a send-jokes-via-email and work-in-a-cubicle society). And these older workers couldn't labor like they used to. So in order to take care of their aged ex-employees, private and public institutions began creating pensions.

When the government uses the word "pension," it means any kind of employer-sponsored retirement benefit. But when people talk about pensions, they're usually talking about what are technically known as "defined-benefit plans." These plans pay a monthly retirement benefit based on formulas that consider such factors as years of service and average salary. Employers are responsible for most (if not all) of the funding, and they're in charge of managing the money (though they usually hire investment firms).

Pensions gradually became an integral source of retirement income for many Americans. In fact, the triumvirate of pensions, Social Security benefits, and savings make up the traditional three-legged stool that many folks use to prop up their retirements.

However, future retirees can't put as much weight on that stool as their parents did.

As the editor of the Motley Fool Rule Your Retirement newsletter service, I've seen firsthand how the new rules of retirement are changing the way people view their golden years. Last week, I discussed the challenges facing Social Security. In this second installment of a three-part series, we'll discuss the demise of the traditional pension and how you can factor your benefits into your retirement plans.

Pensions are changing
In 1986, 172,642 companies offered traditional pension plans, according to the Employee Benefit Research Institute. By 1998, the number of companies sponsoring defined-benefit plans had shrunk to 56,405, a 67% drop in just 12 years. The number of plans insured by Pension Benefit Guaranty Corp. (PBGC), which is supposed to protect the benefits of private pension participants (more on that later), dropped from 39,882 in 1999 to 32,321 in 2002, a 19% decline.

The trend is clear: Fewer Americans will be covered by defined-benefit plans.

Even if you have a pension, there's no guarantee it'll be around when you retire. Just ask the former employees of Weirton Steel, US Airways, Polaroid, or Archibald Candy, the bankrupt manufacturer of Fannie May, Fannie Farmer, and Laura Secord chocolates. (There's something sad about a candy company going bankrupt, especially when Fannies are involved.) After these companies went belly-up, they could no longer pay pension benefits. Their plans -- along with the plans of more than 150 other companies, including, of course, Frosty Morn Meats -- were taken over by the PBGC, a federally chartered agency that essentially insures pensions.

While that sounds reassuring, benefit payments from the PBGC are often lower than what a retiree would have received had the company remained solvent. A Washington Post article told the story of Melvin Schmeizer, a Bethlehem Steel employee for more than 35 years whose monthly pension dropped from $2,850 to $1,700 after the PBGC assumed control of the plan.

Furthermore, the PBGC itself isn't on solid ground. Its fund backing single-employer plans went from a $7.7 billion surplus in 2001 to an $11.2 billion deficit in 2003. The reason: The agency is taking over more plans. Last year, the PBGC assumed control of 152 pension plans (up 5.5% from 2002) covering 206,000 people (up 10.2%). That's the largest annual increase in the total number of people covered by the PBGC. The agency paid a record $2.5 billion in benefits, almost $1 billion more than in the previous year.

Want some more bad news about pensions? According to "The Corporate Funding Survey on Pensions," by Wilshire Research, of the 331 companies in the Standard & Poor's 500 that offer defined-benefit plans, just 19% had pension assets that met or exceeded liabilities. That's an improvement over the 11% figure from 2002, as pension assets grew along with the stock market in 2003. But that still leaves the employees of such companies as Ford (NYSE:F), IBM (NYSE:IBM), and Lockheed Martin (NYSE:LMT) a little nervous -- not to mention the poor souls who work for United's UAL (OTC BB: UALAQ.OB), which is no longer in the S&P 500 for good reason.

Finally, one more foreboding fact: Like Social Security, the worker-to-retiree ratio of a pension plan affects its long-term viability. On average, that ratio is now just one worker for each beneficiary, down from a 3.5-to-1 ratio in 1980. As pointed out by PBGC Executive Director Brad Belt, "In a pension system that is fully advance funded, demographic trends are less significant. But when defined-benefit plans are underfunded by $400 billion, the declining ratio of active to inactive workers puts additional pressure on the system."

What this means to you
If you work (or worked) for an employer that offered a pension plan, you need to find out two things: 1) how much you can expect to receive, and 2) will you really receive it.

Your resident human resources guru is the first person to ask about your defined-benefit plan. She can provide information about the vesting schedule and contact information for the plan administrator.

One of the first documents to review is the "summary plan description," which you should have received when you became eligible for the plan. That will contain all kinds of tidbits about how the plan operates, how benefits are calculated, and how you can get your hands on the money.

Also, each plan must file Form 5500 (or 5500-C/R for smaller companies) with the Department of Labor each year and issue an annual report. Though reading these documents sounds about as fun as playing strip solitaire, it will at least give you an idea of the health of your pension plan.

While you're on the horn with your administrator, trying to probe the plan's health status, request an estimate of the actual benefit you'll receive in retirement.

Determining whether a pension has enough money requires many assumptions, such as future rates of return, future benefits, future number of employees, and who will win the Super Bowl. So, to some extent, it's no more than a rough guess.

If you work for a publicly traded company, you probably already know whether your pension is underfunded, since many of these companies have announced the health status of their pensions. It should also be mentioned in the company's annual report. Otherwise, ask the pension administrator directly.

It's not the end of the world if your pension is underfunded. As long as your company is fundamentally strong, the difference should be made up eventually, through company contributions and/or investment returns.

What's most important is the overall financial health of the company offering the plan. If the company goes bankrupt and the plan is covered by the PBGC, then the plan is insured. However, that's no guarantee that beneficiaries will receive the same amount they would have had otherwise, and more benefits can't be accumulated. (Not all plans are covered by the PBGC, so find out if yours is. Also, pensions offered by government entities don't need the PBGC, since their authority to raise taxes backs their plans.)

Finally, one more important fact to learn about your pension: whether your monthly payment will increase with inflation. Most benefits don't, so the amount you receive in your first year of retirement will be the same amount you receive in your 30th. You have several options when it comes to factoring this into your retirement planning, but here's one: Spend just 50% to 70% of the benefit in the first few years of retirement, and invest the rest. Adjust the amount you spend upward to account for inflation. Once you reach the point when you're spending 100% of your benefit, you can rely on your investments to make up for further loss of purchasing power.

Tune in next week for the lowdown on how to make the most of retirement's third leg: savings.

Robert Brokamp is the editor of Motley Fool Rule Your Retirement . Take a free 30-day trial to see how it can help you shore up your retirement plan. The Motley Fool is investors writing for investors, and we have a disclosure policy.