Do-It-Yourself Pensions Offer Choices--and Risks : Retirement: Plans that let employees direct their investments became more popular in the ‘80s, but experts question what kinds of gains can be made in today’s stock climate.

WASHINGTON —  As the heady days of the 1980s recede, one part of the hangover many employees are starting to feel is the shift in the way companies operate their pensions.

To a far greater extent than at any time since corporate pensions became commonplace, workers are being asked to direct their own pension investments and to bear the risk that their strategies will not pay off.

A generation ago, companies bore that risk. Most pensions provided benefits based on a formula, usually related to pay and length of service, and it was up to the company to provide a fund adequate to the task. Such arrangements are still common, particularly at large companies, but they are increasingly meant to be supplemented by the worker’s own investments. And in many cases, especially at small companies, the worker must do it all.

During the ‘80s, as the stock market and the economy boomed, workers often applauded the change. They got a pension that was portable--a real benefit if they changed jobs, and they got a real account whose balance they could watch grow.

But experts worried--and still worry--that most workers would be too conservative.

Various studies have found that a substantial majority of the money workers commit to their “defined benefit” pensions--those on which they bear the investment risk--goes into fixed-income investments. By one count, for example, two-thirds of the money in 401(k) accounts today is in guaranteed investment contracts, which promise a certain return for a set period of years.

Although there have been periods in recent history when fixed-income investments did very well, over the long run the stock market has outperformed almost every other type of investment.

That does not mean the market does not suffer a good number of fluctuations over any particular period. In fact, using the Dow Jones industrial average as a gauge, only three decades, one of which was the ‘80s, showed more than passbook-savings size growth.

And even within the ‘80s themselves, points out Charles Salisbury of T. Rowe Price Inc., the big Baltimore-based mutual fund operator, the market provided little more than a Treasury bill-rate return if you exclude five particularly good months.

To illustrate the point: $1 invested in the companies in the Standard & Poor 500 stock index (a broader gauge than the Dow Jones industrials) would have increased to $5.02 over the decade. Without the increases from the run-ups in November of 1980, August and October of 1982, August of 1984 and January of 1987, though, the $1 would have grown to $2.92. One dollar invested in invested in Treasury bills over that period would have grown to $2.35.

But Salisbury has other calculations. Studying the market’s performance in the aftermath of eight post-war crises--including the outbreak of the Korean War in 1950, the first OPEC oil embargo in 1973 and the October, 1987 market crash--he finds that the Dow Jones average declined an average of 19%, reaching bottom, on average, five weeks after the crisis. In all cases but the oil embargo, he said, the Dow Jones had more than recovered its losses within a year.

The lesson, Salisbury said, is that “people who did not abandon ship were rewarded henceforth.”

Does that mean that such people will be in the future? Salisbury said he thinks that, on balance, “this is not the time to be selling stocks if you have them; and if you have some liquidity, you should be buying.”

But Camillo A. Schmidt of Potomac Investment Management Inc., a private portfolio management company in Glen Echo, Md., says that stocks that do well “will be the exception, not the rule” in the near term, and that with the economy in the shape it’s in, “any outlook on equities must be tempered.”

“The only thing one can say with any sense of certainty is that whatever happened in the immediate past is unlikely to happen in the immediate future,” said Schmidt, whose firm manages portfolios of $175,000 and more for individual investors.

In other words, do not expect a rerun of the ‘80s in the ‘90s.

What does all this mean for people trying to assure themselves a comfortable retirement?

First, unless you like managing investments yourself or unless you expect to be changing jobs, do not let your employer talk you into giving up your defined-benefit pension plan.

If you must bear the risk, diversify. Do not let the current market slump scare you out of stocks entirely. Only in the Depression did stocks actually lose money over a decade. If you are to catch the special months in the special decades, you must already have your money in the market.

The younger you are, the longer you can wait, so you can afford to take more risk. Salisbury said that as a rule of thumb, consider having 10% of your portfolio in fixed-income investments for each decade of your life. If you are in your 50s, for example, you would have 50% in fixed-income, “climbing toward 60% as you near 60,” he said.

“Not to sound cynical, but my view of the market is it’s not likely to make somebody rich,” says Schmidt. “It is likely to provide for specific goals--retirement, the education of a child or even a trip. If you have a specific goal in mind, the market can come into play, recognizing that (investments are) a competitive marketplace and you need to look at bonds,” certificates of deposit and other investments too.