Traditional pension plans have become almost a thing of the past, especially for younger workers. But even if you're fortunate enough to have a pension at work, recent events have shown just how fragile it may be -- and how things could get a whole lot worse in the future.

When your pension falls short
Eastman Kodak's (OTC: EKDKQ) recent bankruptcy filing has again brought employee pensions back into the spotlight. According to SmartMoney, Kodak had about 63,000 workers and retirees covered under two traditional pension plans. Now, some of them may no longer get the pension benefits they expected.

For those who've already retired, the news isn't as dire as it may sound. If Kodak shuts down its pension plans, then the government's Pension Benefit Guaranty Corporation will step in to provide benefits, in most cases ensuring that workers will get the same benefits they were getting before. The only exceptions would be workers who receive more than the PBGC's maximum benefit cap, which stands at the equivalent of about $56,000 per year. They could see their benefits cut, depending on how the bankruptcy proceeding goes.

Obviously, this isn't the first time that a pension plan has left some workers with problems. AMR's bankruptcy in November brought back recollections of numerous airline bankruptcies, many of which resulted in terminated pension plans. In fact, a report from the General Accounting Office in late 2009 suggested that several companies, including United Continental's (NYSE: UAL) United Airlines and US Airways (NYSE: LLC), paid out huge salaries and other compensation to executives shortly before killing their pension plans, leaving taxpayers on the hook for hundreds of millions of dollars of extra benefits. Moreover, with many airline pilots and other highly paid employees earning well over the PBGC limit, some workers ended up paying for their employer's C-suite excesses.

From bad to worse
For current workers, however, the news is even worse. Even if they manage to keep their jobs, a terminated pension plan means that they can't count on getting anywhere near what they might have received from their pensions had the plans continued into the future -- especially for workers who still have years to go before retiring.

That problem isn't unique to bankrupt companies. Several years ago, Hewlett-Packard (NYSE: HPQ) and IBM (NYSE: IBM) were among many companies that decided to freeze their pension plans, affecting thousands of current workers. The moves not only prevented new employees from gaining any access to pension benefits but also froze the amount that current participants were entitled to at the level at the time of the freeze. Given that pension benefits often ramp up significantly in the last few years before workers retire, the net impact of pension freezes can be huge -- and leave you in a lurch that's difficult to get out of.

Be prepared
With the economy starting to recover, you can always hope that your employer will be able to weather the storm. But if you have concerns about your employer's ability to pay pension benefits far into the future, consider these options:

  • Take the money and run. Often, you may have a choice at retirement between taking a lump sum or accepting monthly payments. Even if the lump sum wouldn't let you buy an annuity large enough to replace your pension payments, taking it while the company has the money to pay you ensures that you won't get left short if the company's pension plan melts down later.
  • Start saving. The fragility of pension plans shows just how vitally important it is to have money set aside outside a company retirement plan. Pensions are great, but having your own savings gives you a lot more flexibility to invest the way you want as well as to use your money when you need it most.

Finally, don't panic. Even with the PBGC facing a potential shortfall, it's likely that the federal government would bail out the pension-saving agency to ensure that retirees don't lose a primary source of income.

Whether you have a pension or are saving for retirement entirely on your own, you need good investments if you want to retire rich. In The Motley Fool's latest special report, you'll find several stocks that can help you reach your retirement dreams. Best of all, it's completely free -- but don't miss out: Grab it today before it's gone.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance. You can follow him on Twitter here.