Low interest rates are the final straw for many company pensions What finally did the plan in? Rock-bottom interest rates. The very rates, in fact, that helped fuel a stock-market rally and brought ILM double-digit returns on its pension-fund investments in each of the past three years. But because of an accounting twist, the near-zero rates also caused ILM's projected pension obligations - like those of every other private company that still provides a traditional pension - to spike, overwhelming the stock-market gains. To calculate pension obligations, companies have to factor in the future value of money. Accounting rules peg that value to interest rates on corporate bonds. If bonds have a high interest rate, you can assume a high value for future dollars. But if rates are low, the dollar is low, and it takes more of them to meet future obligations. So when interest rates go down, the projected obligations go up, requiring the firms to set aside more cash today to pay retirees in the future. For ILM, that meant funneling more than $2 million - roughly 22 percent of its payroll - into its pension fund over the past two years. The expense was too high to keep it up, the company decided. Its board members had a long, agonizing debate about whether they should hold out a little longer, hoping for interest rates to rise. "This was a huge decision," ILM President John Wolf said. This was a fundamental promise to our employees, and we did not want to renege on that. You want your employees to have a good life after they work decades. But with the way things were, we had no choice. The company sent an e-mail to its 64 employees breaking the bad news. "You know these people, and you know a decision like this affects their lives," said Susan Knotts, ILM's vice president for human resources. It's a tough call that affects us, too. The experience of ILM speaks to a new challenge confronting the old models of retirement security in a turbulent and fast-changing economy. For generations, the unprecedented gains in living standards enjoyed by the nation's retirees were boosted by employers who offered longtime workers a fixed benefit for life once they retired. But that benefit is increasingly rare. Many private firms stopped offering traditional pensions and switched to 401 (k) -type accounts, in large part because government rules aimed at ensuring the financial viability of the traditional plans made it more expensive for employers to provide them. The financial risk posed by pension plans only increased when a long era of ever-steady stock-market gains ended in 2000, giving way to more volatile returns. Now, meager interest rates are squeezing the fast-dwindling number of traditional pensions still offered by private employers, even as policymakers are searching for ways to bolster retirement savings.