7 5II 2 8l0 4 96 14 3 17 16 12 13 EBRI 15 i J WHAT ARE 11qEISSUES? TABLE 2 WHY HOW ARE IS I_HE PENSION PI_SION DECISIONS UNIVERSE INCREASINGLY CHANGING? FINANCIAL DECISIONS? Economics, Mr. In ofademographics, Chairman, money statment that to it could the and is F_ISAAd be achanging pleasure going visory to government to Council pension present of policy benefits the this U.S. guaranty statement forDepartment thatthattowith the of Theemployer pro Congress vides tohas significant retain never cash explicitly incenti it wouldvexplored e otherwise for the employers have subject to contribute oftowhich maketype of TABLE 4 TABLE 5 Endnotes TABLE 3 TABLE 1 T-21 PENSION PLAN GROWTH The I. Who setdoes of issues the moneyofbelong concern to? to this Committee revolve around the Committee each passingonyear, a mostcostimportant and financial subject:effect transfers will increasingly of assets influence involving pensionTheemployer's program decisions tostructure the plan isand employees. ofmost or, plan the pension in consistent sponsorship some Canuni instances, itverse with changes not itself be what toin viewed provide expectation -- public that as apolicy inis, financing theof the best what should balancebe. of Labor, Roger Thomas, Pension Counsel, House Select Committee on Aging, PENSION PLAN GROWTH SUblqARYOF 0UALIFICATIONS AND TERMINATIONS CORPORATE AND SELF-EMPLOYED PENSION PLAN CREATIONS, PENSION PLAN GROWTH BY TYPE OF PLAN TERMINATIONS AND NET PIAN INCREASES i/ Sylvester J. Schieber and Patricia M. George, Retirement Income Ntanber of Ntmaber 1975-1983 of Net Number Increase in Net % NetFor Totalthe defined benefit pension plan the "deferred wage" decisionsinterest Congress in the entire ofmight thoserealm do employees of that employee they for the benefits, would employer not both tohaterminate public ve otherwise andtheprivate. Nevertheless, increasing corporatemechanism degree sponsors thetofor Congress which andthe pension company pension hasplans. passed stock, planAsreal decisions antheongoing estate, Institute are lease series corporate fully holds, ofdocumented legislative or financial in suggested defined benefit three points and defined or issues. contribution plans -- has been significantly Period Qualification Terminations of Plans Number of Plans Annual pportunities in an Aging America: Coverage and Benefit Entitlement Plans Defined Defined Total Plans Year Defined Benefit % Defined Contribution Ending Rulings to Date to Date in Effect Over Previous Period Growth Washington, D.C.: Employee Benefit Research Institute, 1981) and EBRI, Defined Benefit Defined Contribution WHATCAN BE DONE? Year isCreated the accrued Benefit benefit Contribution promise. This Total promise Planscan be % Gviewed rowth decisions. statements defined undertaken submitted Congress benefit had tohas Congress this plan played Committee and not areplace major been on May discussing role it i, with in1981, making a the target and issue. thisonbenefit so. JuneFirst, 7, 1982, it proposals I. other which "Termination investments affect relative of an which overfunded incentives are held pension for by the the plan, two employer." therefore, systems.Again, Acan change of affected by changes in public policy.2_/ Passage of the I_nployeeRetirement Defined Benefit Plans Defined Contribution Plans Retirement Income Opportunities in an Aging America: Income Levels and March Net 31, 1983 5/ 15,721 Annual 152,773 Net 776,223 11,743 Annual 1.5 1956 60.3 39.7 Net Total Dec. 31, 1982 - 908,275 148,795 764,480 70,200 10.1 Year Adequacy (Washington, Created Total D.C.: Employee Growth % Benefit Created Research TotalInstitute, Growth 1982). major The significance, wreck separately issues Itfinancial should areand for not beexample, apart ha made asvoc simple from with clear, wasthe financial ascreation however, Thomas amount security C. of of that Woodruff, the money this Pension ofinbehavior aPh.D., the worker Benefit pension has will andGuaranty implied has private 19 Income 56provided Security plan multiple pensions 4,944 significant withAct witnesses what are in 2,983 1974 would playing tax before (ERISA) have incentives a this 1,961 brought vital beenCommittee for role PBGC with the in 35 premiums ,5it creation 03 helping have a fundamental condemned enhancing toofassure plans. 16.2 this thechange economic Second, in Dec. 31, 1981 822,924 133,644 694,280 68,095 11.0 1957 55.1 44.9 Plans Plans Net Plans Plans Plans Net Plans Plans 2/ Economic Survival in Retirement: Which Pension Is For You? (Washington, Dec. 31, 1980 741,387 120,202 626,185 56,063 9.9 1957 6,044 3,347 2,727 41,577 17.1 1958 55.9 44.1 D.C.: Employee Benefit Research Institute, 1982). Year Qualified Terminated Created Qualified Terminated Created Created to the vERISA fund. 10,769 alue ofAdvisory This those 124,7is66 target recognized Council benefits? - ofbythe F_ISA 11,162 U.S.with Department 320,872 its provision of Labor - foror this 19 it security plan 58has sponsor actuall behavior be for 6,551 present behavior. the y nation's provided as among inappropriate. 3,659 Theseonly tax aged. changes acredits 2,892 small A growing areIt minority documented rather may number 48,128 than of in of the fact in tax thehundreds Tables reductions be. nation's 11-5 5This .8of retirees attached for the Corporation under I_RISA. The legislative history of F_RISAis replete with his family." He bases this statement on a judgment about Dec. 31, 1979 1959 672 045 51.3 106,923 565 122 47.7 46,036 8.9 3/ Pension Plan Termination Insurance: Does the Foreign Experience Have 1976 -4,180 120,586 (3.4) i/ 7,674 328,501 2.4 1959 Dec. 31, 6,792 1978 615 3,554 168 96,084 3,238 519 086 54,920 50,398 14.1 10.8 1960 60.1 49.9 1956 3,175 192 2,983 2,072 iii 1,961 4,944 R--elevance for the United States?Statement (Washington, of D.C.: Employee Benefit Dec. 31, 1977 549 484 80,796 468 686 19,601 4.4 The resolution of the three issues noted above is neither as clean nor 1977 creation Committee. to this of1,616 statement. certain The issues 122,202 forms are ERISA asof defined complex increased 1.2 contribution 17,985 as the Michael attractiveness 346,486 pension S. Gordon programs. so5.5 articulately of defined Third, 1960 concerns receive income regarding Committee, employer 9,399fromfunding the private however, potential 4,711flexibility. pensions must effects 4,688 upon lookofretirement, Itthis atis 64,319 the program further with broader recognized onpublic the future issues 17.1 and byprivate of the thousands of pension plan sponsors in the United States. The plan type by noting: "Even if some form of defined 1961 52.5 47.5 Dec. 31, 1976 514 068 64,981 449 087 3,494 0.8 1957 Research 3,527Institute, 180 1979). 3,347 2,898 171 2,727 6,074 1978 5,103 127,305 4.0 45,295 391,781 13.1 1961 8,652 4,545 4,107 72,971 13.5 Dec. 31, 1975 485 944 40,351 445 593 21,931 5.2 1962 50.3 49.7 1958 3,883 224 3,659 3,071 179 2,892 6,551 4/ Retirement Income and the Economy: Policy Directions for the 80s Dallas L. Salisbury* 1979 Dec. 31, 12,488 1974 139,793 455 905 9.8 32,243 33,548 423 662 425,329 54,781 8.614.8 sector it pointed contribution hasforecasts out created the Congress involved. toplan pension that the indicating type must Council Would significant vehicles itself carefully the that and inPBGC and placement over defined this eor vdecreased aluate two-thirds the Committee. benefit employees the of risk the long-term of plans on new attracti have They the retirees been consequences funding employer are veness not better will of standards as inrecei defined easily ve as pension 1962simple system. contribution as9,359 most Byof 1976, plan 4,712 those only replaces who 4,647 one havethe year testified terminated after 82,330 before the passage plan, this Committee of it 12.8 ERISA, is have the 1963 52.6 47.4 1959 3,824 270 3,554 3,442 204 3,238 6,792 _Washington, Dec. 31, 1973 D.C.: Employe 396 520 e Benefit 27,639 Research 368 881 Institute, 55,475 1981), and 17.7 America 1980 14,552 154,345 10.4 41,511 466,840 9.8 1963 10,250 5,399 4,851 92,480 12.4 Dec. 31, 1972 1964 336 915 56.9 23,509 313 40643.1 45,815 17.1 1960 5,011 300 4,711 4,946 258 4,688 9,399 in Transition: Implications for Employee Benefits (Washington, D.C.: Submitted to the U.S. House of Representatives 1981 19,253 173,598 12.5 48,842 515,682 10.5 Dec. the 31, 1971event that 287 580investment 19,989 return267 is591 poor and 37,329 gain for 16.2 the enacted concerns partitioned with over offasif the was ERISA. the effect implied employer Fourth, ofbyhad this the itobtained has title program structured ofayour were total hearing, the being funding Pension widely "Corporate waiver Benefit discussed. from Misuse Guaranty of In such implied. 1964 benefits of Some 10,667 policy ,upon for changes retirement example 6,072 , made have fromto 4,implied 5the 95restrict current that 103,247 thedefined pension few and benefit system what11. by that assets 5 1995.areI benefit plans. unlikelyThe that differences the worker between willthese be able plantotypes achieve are the explained level in the 1965 55.9 44.1 Employee Benefit Research Institute, 1982). DeC. 31, 1970 246 916 16,654 230 262 30,268 15.1 Select Committee on Aging 1982 23,146 196,744 13.3 47,054 562,736 9.1 1965 12,496 6,983 5,513 115,743 12.1 1966 56.1 43.9 1961 4,919 374 4,545 4,468 361 4,107 8,652 1983 Pension 2/ Assets." 4,325 They 201,069 are complex. 2.2 And,7,418 as Roger570,154 Thomas has1.3 articulately EBRI clearly stress, pamphlet the employer might the this property Internal attached mean is iffrom for of investment Revenue to the the the this employee many. current Service? statement: performance pension andWould that "The system. isthe the Defined good. employees assets YouThis ,are Benefit have gain not holding been the and hasaccrued Defined these Corporation 1979, 1966 EBRI 16,973 sponsored in such a9,521 aforum way entitled that7,452 employers "Pension 132,716 pay Plan premiums Termination that 14.7Insurance: have no Dec. and 31, 1969security 214,342 of benefits 14,348 previously 199 994 offered 26,346 under 15.2 the 1967 55.6 44.4 1962 5,188 476 4,712 5,030 383 4,647 9,359 for the record of a hearing held on Dec. 31, 1968 186,267 12,619 173 648 22,339 14.8 1967 19,214 10,690 8,524 151,930 14.5 1968 54.7 45.3 1963 5,840 441 5,399 5,304 453 4,851 10,250 Dec. 31, 1967 162,485 11,176 151 309 19,214 14.5 September 28, 1983 stated, most they have frequently far reaching simply implications meant lower for the future futurepension of retirement Does hearings the 3. because Foreign Should F_xperience employers of your concern Have be allowed Relevance that theto "present forterminate, the pension Unitedor States?" system" partially may to explore not be benefit 1968 relationship , better represents 22,339 to risk off if or the 12,224 the exposure employee's employer, yet 10,115 if deferred simultaneously in the174,269 wage. cash bind allows Thischaracterized isongoing not 14.7 as employers clear as Contribution terminated Plans: plan." Understanding These statements the Differences." represent aFor flatpurposes judgmentof the 1969 53.4 46.6 Dec. 31, 1966 141,964 9,869 132 095 16,973 14.7 1964 6,581 509 6,072 5,127 532 4,595 10,667 on the published subject of SOURCE: IRS Disclosure Data; EBRI tabulations. Dec. 31, 1965 123,781 8,659 115 122 12,496 12.2 1969 25,905 13,824 12,522 200,174 14.9 1970 50.8 49.2 1965 7,495 512 6,983 6,037 524 5,513 12,496 Dec. contributions. 3[, 1964 110,249The concern 7,623of this 102 626 Committee10,667 is that it 11.6 has Committee's with incomeussecurity in about 1995. current the inThat relative America. concerns concern merits twoarises differences ofbecause defined areofcrucial: benefit what the and defined Committee has many to shift of those liabilities terminate, issues.3 defined through / Thebenefit thepublication termination pensionrecounting plans? of under funded the forum's pension proceedings plans. they 1970 wouldby 30,268 suggest. Mr. Thomas, It15,370 is hadinconsistent chosen 14,898 to with terminate the 230,442 concept the defined of employer benefit 15.1 risk for 1971 56.0 44.0 Dec. 31, 1963 98,541 6,582 91 959 10,250 12.5 "Corporate Misuse of Pension Assets" l/ Represents a percentage decrease in the annual growth rate of defined 1971 37,329 20,888 16,441 267,771 16.2 Dec. 31, 1962 87,397 5,688 81 709 9,359 12.0 1972 57.9 42.1 1966 10,124 603 9,521 8,059 607 7,453 16,973 Dec. 31, 1961 77,179 4,829 72 350 8,652 13.5 pensionThis benefit come Committee to plans. meanhas recovery a vitalofrole excess to assets. play. It has the opportunity to under characterized The fundingeconomy as and "corporate inconsistent in general, misuse and withprivate of employer pension regulatory assets." provisongroups for in postretirement particular, provides 1972 o contribution pension Contributions concise 45,815 The lawplan? analysis has 26,520 plans toexplicitly Since a defined which -- the judgments 19,295 allowed make benefit employer the this plan that 313,586 behavior issince mayare atvary 1921. risk not offrom concern for currently The year clear 17.1 poor toto this 1973 56.9 43.1 1967 11,292 601 10,690 9,229 705 8,524 19,214 Dec. 31, 1960 67,792 4,094 63 698 9,399 17.3 2/ 1983 is for 1/1/83 to 3/31/83. 1973 55,475 31,608 23,868 369,061 17.7 1974 54.9 45.1 1968 12,896 672 12,224 10,886 771 10,115 22,339 have added to this movement towards financial decison making. First, move WILL PRIVATE Congress, For PENSIONS the fordefined the SURVIVE? first contribution time, in plan the the direction deferredof wagearticulating is the a Committee 1974 ability, fully 54,601 understandable. under 30,002 specified circumstances, 24,599 423,662 to take these actions 14.8 pensionDec.increases year investment 31, 1959andlongperformance the 57,835 afteremployer the and retiree 3,536 may willfrequently has eventually 54,299 left thehave have 'Wage 6,792 toanearner" contribute unfunded 14.2 status. incorporated in law. In fact, since 1974 the Congress has 1975 49.1 50.9 1969 14,692 969 13,824 12,383 861 12,522 25,905 Dec. 31, 1958 50,569 3,062 47,507 6,551 15.9 1975 21,931 10,769 11,162 445,593 5.2 1976 0 i00 1970 16,512 Dec. 31, 19571,142 43,615 15,370 2,65916,06240,956 1,164 6,074 14,89817.4 30,268 Otherwas witnesses reiterated have in ERISA. referred Creation to the ofthetheAMAX PBGCsituation. makes the This national contribution retirement income itself.policy. The employee I respectfully will receisuggest ve morethatthan a broader inflationmore placed cash major if thecost "in-kind" pressures contributions on employers do not to prove focus to on be employee 1076 Congress Corporations passed liability 3,494hasnoconsidered attributable began fewer -4,180 creating than billsten to 7,674 which private the statutes would plan, retirement 449,087 amend which while ERISA income make thewith programs defined defined regard .8 before to Dec. 31, 1956 37,190 2,308 34,882 4,944 16.5 1977 8.2 91.8 Dec. 31, 1955 31,943 2,005 29,938 1,769(1) 6.3 1977 19,601 1,616 17,985 468,688 4.4 1978 i0.I 89.9 1971 22,493 1,605 20,888 18,171 1,730 16,441 37,329 June 30, 1955 30,046 1,877(2) 28,169(2) 3,290(2) 13.2 benefit cost that inflation absolute contribution, and its effectifoninvestment corporate profitability. performance isSecond, approach PBGC the Congress for determination several of would full of allow years. value, the this United decision how Congress Committee hasStates easier thehas employee toeven for most alsoexplicitly sponsors been held effectively aharmed? series ofprovided plans contribute For of hearings that defined tax incentives are to on future the corporation 1978 contribution contribution 50,398 has proposedplan plans 5,103 to generally terminate increasingly 45,295 the costs attractive defined519,086 the benefit same visapercentage vis pension defined 10.8of plan for 1979 27.1 72.9 June 30, 1954 26,464 1,585 24,879 4,204 20.3 1972 28,265 1,745 26,520 21,070 1,775 19,295 45,815 1979 46,036 12,488 33,548 565,122 8.9 June 30, 1953 22,069 1,394 20,675 3,657 21.5 1980 26.0 74.0 1973 33,830 2,222 31,608 25,608 1,908 23,867 55,475 June 30, 1952 18,289 1,271 17,018 2,347 16.0 economic its retireessecurity positi under-funded, compensation while ve,of but fully the each and could aging.4 funding year probably evenand /those recei The bymoti definition v benefits Employee e vless ates , than it Benefit and carries for that tothose with contribution Research maintain that it are no aInstitute defined employee 1980 subject. through the contribution desires 56,063 Taken Internal together, forRevenue 14,552 plans greater this these Code. early 41,511 activity Code "in-kind" age provision without total 626,185 contributions for compensation resolution plans in raise 1921 and has 9.9actually acapital simply benefit plans. Corporations are now responding to the 1981 28.3 71.7 1974 32,579 2,577 30,002 26,806 2,207 24,599 54,601 June 30, 1951 15,899 1,125 14,671 2,517(3) 20.7 1981 68,095 19,253 48,842 694,280 II.0 1982 33.0 67.0 June 30, 1950 13,899 ........ 1975 15,319 4,550 10,769 14,720 3,558 11,162 21,931 well-funded and choose not to bear the risk of bad decisions stands ready unfunded in the to work event liabilities. with thatyou investment in carrying performance out yourismission. poor. exacerbated accumulation different the programs affects set with ofofF__ISA a degree issues. on defined of Congress, portability benefithowever, have pension affected hasplans passed corporate and has benefit 1982 representplan incentives 70,200 recognition for itscreated 23,146 of activewhat by workers. was Congress 47,054 already This--occuring. 764,480 employer whether hasPensions they two alternatives. I0.I were grew slowly 1983 i/ 36.8 63.2 June 30, 1949 12,865 711 12,154 896 8.0 1983 i/ 11,743 4,325 7,418 776,223 1.5 June 30, 1948 11,742 484 11,258(4) 1,888 20.1 1976 4,790 8,970 -4,180 23,334 15,660 7,6741 3,494 2. Does plan type matter? One decision is to maintain making. the Third, entire the plan, changing which theynature do notofappear pension to beliabilities obligated made from that ocorporate multiple Under on intentionally period thedefined plan part statutes through of sponsors or benefit other the unintentionally aimedcorporate late all plans at1940s, the encouraging all managers. more atcreated of which sensitive the employers time Creation risk bywage toto Congress. ofprice ofthe create poor therelative controls Aug. 31, 1946 9,370 == 9,370(4) 1,584 20.3 1977 6,953 5,337 1,616 28,463 10,478 17,985 19,601 Dec. 31, 1944 7,786 -- 7,786(4) 5,839 300.0 SOURCE: IRS Disclosure Data; EBRI tabulations. 1978 9,728 4,625 5,103 55,956 10,661 45,295 50,398 Sept. 1, 1942 1,947 -- 1,947(4) 1,288 195.0 attributable PBGC Plan created to type ERISAmatters a '_arket and multiple aintrusion" great actions deal andasmany the of disruptions the attached Financial pamphlet should Accounting SOURCE: by advantages provided law to investment Condemnation IRS employee do. aand Disclosure boost But disadvantages stock this toperformance the hearings also Data; ownership development isEBRI ofare subject resides defined plans. tabulations. notofto what with these benefit Would multiple is the programs needed. itsponsor versus not opinions. bewhich defined Decisions more who The has logical has contribution on persisted other a is Dec. 31, 1939 659 -- 659(4) 549 -- 1979 15,755 3,267 12,488 41,122 7,574 33,548 46,036 l/ 1983 is for 1/i/83 to 3/31/83. 1980 18,849 4,297 14,552 50,493 8,982 41,511 56,063 Standards Board have combined to move pension assets and liabilities toward 1 to / 1983 terminate isfor explains. for the 1 the /1/83 Congress, entire The to Congress, 3/31 plan /and 83. and this however, replace Committee, has it with chosen to review atodefined authorize that entire contribution and programs.ha the vThe e nature been more expected. ofthethe Congress, pension If or system a those corporate that in the themanager private Congresssector, has actually andiscuss through today.l__ legal obligation /Even in totheprovide presence theof funds major changes for theinpayment federaloflaw, for (1) Six month total (2) See RR 101.-4 1981 23,789 4,536 19,253 51,748 8,906 48,812 68,095 the corporate (3) accrued Increase desires allow two from balance are June pension types needed. 30, sheet of 1949pension benefits, (seeand RR 101.4) therefore programs. whiletowards Both under are thevoluntary, the realm defined of and the Chief placing example significant the subject "ovEmployee er-funded" thanrestrictions Retirement to defined criticize benefit Income on the companies pension Security sponsorsplan that Act of defined and are of 1974, responding is looking benefit total at to growth pension of program. Without suggesting what appropriate policy is, it is irrefutable 1982 28,189 5,043 23,146 57,162 10,108 47,054 70,200 (4) 28 month period, average 2,507 plans per year 1983 i/ 5,745 (5) 3 month 1,420 period, 1/1/83 - 34,325 /31/83 9,976 2,558 7,418 11,743 * The views expressed in this statement are those of the author and do not Financialboth Officer. can legally be terminated. The Congress clearly has the the system has persisted. There is no reason to believe that the private plans that PBGC the 2. this the ,more as"One possibility alikely legal premium-supported recentincentive? ittrend becomes of paying involves that institution Further, the corporate the , same contribution since dollar isplan farthesponsors level better by Congress premium corporate act off based has to receiving upon contribution plan the employee bears this risk of poor necessarily reflect the views of the Employee Benefit Research Institute, its *Does not include plans covering self-employed individuals (Keogh Act plans). Trustees, members or other staff. The Congress and this Committee should not be surprised by this trend. premiums apension worst case investment power the encouraged on system the scenario. PBGC to active -- change performance. in ESOP defined work For the formation, those example, force future benefit rules. o£is as AMA this and it the Xnow But, rather may defined sponsor logical the mean thanCongress contribution with shifting on fornoemployers aAMAX must sefrom vfirst employees erely -- to awill defined do at sponsors of employer stock, oil and gas royalty interests, SOURCE: IRA SOURCE: Disclosure Charles D.Data; Spencer EBRI Associates tabulations. for 1930 to 1975, HBRI tabulations of IRS data for 1976 to 1982. all. deal with the explicit issue of what it wishes public policy benefit anything In fact, under-funded believe it to but lease has acontinue defined hold taken thatinterests contribution hold pension to contributing grow in government in plan, orthe today employer employer future. whatbecause itself. isstock real appropriate they Witness toproperty believe their thebeha Social plan to they vtheir ior? is may Security not I/ 1983 is for 1/1/83 to 3/31/83. Act Amendments of 1983 and current concern over the future of Medicare. to be. The problem with that exploratory process is that it have the voluntary consistentability with Congress' to do sodesires tomorrow.to have employees own more Premiums pension paid plan.to the Contributions PBGC represent of athese reduction types in the enable amount an of the company? EMPLOYEE BENEFIT RESEARCH INSTITUTE 212l K bircct. Nx, V .'5uitt. _t,0 \Vashington. 1)_.' 200_7 lclcphonc (202) 059-0,',70