T-87 in d point the o cr es ease fnot und for in ha the has ve the magnitude Rm le P gal BG pleC re assets cd our efiof scit e the toto topamount a the $1.8 y its exc bliabilitie illion, ess pension asse s with ts (plans bof e total ne overfunded fitare liabilities payments) willingplan of tos for $5.1 pay these a billion for assets outside and between the two guarantee funds is that the _ that a plan insured by Table 3 _UBMI_ION OF D_ _ALISBUItY ar ser ovices. not ineludod on tho li_t. asset conss idor of abla $3.3 bil p_rio lion. d ofThe timdreport ' (Pengion pointe Bo d nout ofit for Guar the anfir ty st C tim orpo e ra that tion,PBGC 1991). is PBGC will fail is diversified aerogg govoral kay indugtriog whoroa_ S&L guarantoo EBRI T-87 Surveyed Firms' Funded Ratios, by Percentage of All Surveyed Pension Plans PRESIDENT Chart1 A recent survey shows the average alm,,al fee paid by corporate plans to exposed Th toe about agency$20 's defi billion cit, w tohile $30Ltre billion nding inup unfunded ward -a overpensions. time, has The exhib annual ited a great funds were exposed exclusively to the risks of a single industry that was extremely EMPLOYEE BENEFIT RESEARCH INSTITUTE PBGC and the "S&L Fiasco" AssetDistributionin PrivateTrusteed Pension Plans Ratio of Accrued investment deal of volatility, managers, particu relative larly in to the assets mid-to-lat managed, e 1980 was s. 44.0 The basis 1986 points, PBGC Annual or 0.44 report letter noted: "Our long-term goal is to operate as a service-oriented, vulnerable to fraud and events beyond its control. FOR THE SUBCO_ ON OVERSIGHT percent Report Public pla (a c basis edconfidence thpoint e defici istis eq at ua something $4 l to billi 0.01 on to percent) dube e to guarded. LTV. in 1990 The It (Greenwich should present only deficit Associates, be threatened of $2.5 Be financially nefitsoverAss solvent ets 1981 and 1professionally 982 1983 1984managed 1985 1986 insurance 1987 company 1988 1989 that1990 serves 1991 as Equity-50.0% COMMI_ ON WAYS AND MEANS if 1991 there ). Acco is a rding real reason to EBRI to do tabul so. ation Compari s, pe son nsionofp PBGC lans pa to yin the g th "S&L e mini fiasco" mum serves abilli The safety onLon_ is net hiH gh for istory er a th healthy, aof n PBGC at any growing Reform time o defined ther thabe n nefit 1986.pension While the system." reported deficit \ U_. HOUSE OF RE,]_ESENTATIVES 0.00-0.49 17% 8% 6% 4% 3% 2% 3% 2% 3% 2% 1% to imply that a large number of pension plan8 that no one thinks are in trouble are premi include um PBGC s the to PBGC adopted presentpay val a revised a ue premium of lia investme bilitie rate s ntin forthe policy futu range re in benefit 1990 of 1 basis that payments, point immediately to it makes 9 basis no A review ofPBGC Ann, ml Reports to Congress finds that recognition of the SEPTEMBER 24, 1992 0.50-0.74 17 13 13 8 6 5 3 4 4 2 4 points attemptforto benefits include at fut the ure an rev nual enueguaranty receipts m th oa _mum t will be of availabl $28,227 e per to a participant t least reduced on the verge equityof exposure failure, that from a taxpayer 50 percent bailout to 33 percent, is imminent, with and subsequent that PBGC decreases is in "imperfection" of the original statute came early. The 1976 report raised the 0.75-0.99 21 24 17 15 13 14 10 11 11 11 10 (table partially 5). cover Underfunded these liabilitie pension s. plans According payingto PBGC, the maxim current um pr premium emium pay receipts from 3 to historically 25 percent bad in condition. 1991, and increased None of these bond conditions exposure from exist. 43The percent unfortu to nate 59 percent, 1.00-1. potential 24 need for23higher 26 premiums, 25 20 which 21 were 17 in turn 16 increased 16 18 in 2 1977 0 25 from $1 v termination basis total $790 points s million to of34 Eastern basis per year, points and while Pan for Am, the interest s which ame and level increased dividend of guarantee. PBGC receipts liabilities Pension currentlyin plans 1991, 1. with 25-1.49 further increases 11 to1270 percent 18 21in 1991. 19 This 21 represented 20 20 a1significant 9 20 22 shii_ to $2.60. The 1978 report stated: "PBGC studies and research reflect both a The Employee Retirement Income Security Act of 1974 (ERISA) was a Bonds-22.2% 1.50ormore 11 17 21 32 38 41 48 47 45 45 38 from currently approximate the inve pay stment $305 significan million policy tly per less urged year forupon their (PBGC, the benefit agency 1991). guarantee in the 1970's than by they ERISA pay to author outside were anything but unexpected. The prospect of liabilities from LTV were well growing awareness of fundamental defects in that program and possible solutions landmark piece of legislation. Among its major provisions was the creation of managers Table for 2pension comparesfund PBGC's investment current services reported(from exposure 40 basis level points with toavailable 53 basis Senator known nearly Jacob a Javits, decade who ago.argued In 1986 thattheanPBGC equity deficit oriented was emphasis reported would at $4.0 allow billion Miscellaneous that will add to the long-term strength of the private pension system." That year PBGC. ERISA in general, and the provisions related to PBGC in particular, have Number ofPlans 575 813 700 919 846 799 720 786 787 781 801 Submission points). Only underfunded pensiono_ plans pay premiums close to average lower (compared Ass premium ets-10.9% to s$2.5over billion the in long 1991) term.dueThe to the newshort policyterm has holding the virtue of the of limiting LTV plans figures of past exposure 2(Ippolito, 1989). 1990 exposure ($25.6 billion) is lower PBGC told Congress that the Contingent Employer Liability Program called for by been smended many times since 1974 in an effort to better achieve the original investment management fees for participants retiring at age 65, 40 years aider swings by ERISA PBGC. inwas the "unworkable PBGC deficit and when undesirable." interest rates change, but the negative of than at anytime between 1978 ($116.9 billion) and 1986 ($49.2 billion). In fact, Source purposes : The Wyof att the Compa Act. ny, 1991 PBGC , 1990 and has1989 consistently Survey of Actuarial undertaken Assumptions and analysis Funding: to Detailed identify Survey areas Results Pensi plan termination. loweringCongress the longhas term a long rate history of returnof careful that might monitoring be achieved of PBGC by a and higher legislative exposure current 1,000 or exposure More Active is Participants approximately (Washington,40DC: percent The Wyattof Company, the historic 1989, 1990, average and 1991).of $59.9 The 1979 report outlined planned legislative proposals for the single where further change would improve the system. Note: Data from The Wyatt Company Before are based the on a survey Subcommittee of pension plans oncoveri Oversight ng 1,000 or more active employees. The 1990 action to equitie when s. needed to avoid any type of situation even resembling the "S&L billion. PBGC is a stronger agency today than at any time in its history, both employer program and reviewed proposed changes in the Multiemployer program, Most recently, additional propo o sals for change were discussed in the 1991 Mutual Funds-4.8% contained single employer plans (90 percent) and multiemployer plans {_onclusion Committee on Ways and Means fiasco." By And, the end ERISA of fiscal has been year extremely 1990, the agency successful had in not strengthening proposed anythe specific overall financially and in its legal authority. while the 1980 report contained further discussion of desired change and reported PBGC (10 percent). Annual Report to Congress. Changes to the Bankruptcy Act were proposed M insured Doe defined s a general benefit taxpayer system. bailout reminiscent of the "S&L fiasco" loom on legislative language. The annual report noted: "PBGC could encourage better that the Multiemployer changes had been enacted (MEPPA). in November 1991 in separate pieces of legislation (S. 1985 and H.R. 3837); Markets-1.8% Mortgages-2.0% _Cash-8.3% o __ PBG Status C'sFurthermore, of horizon? the Defined Ther it eBenefit should are cube r System ren emphasized tly sufficienthat t liquid the "S&L assets fiasco" within had the other aggregate funding and reduce its exposure by seeking tougher funding rules, better pricing The 1981 report outlined single employer program changes that were amended versions of these bills have been passed by their respective chambers. Source: Federal Reserve BoardFlowof FundsAccounts,FinancialAssets and Liabilities,Fourth Quarter 1991, March 12, the features defined cost b of not enefi insuring found t system in underfunded the itse pension lf to cover plans, system. thereducing ex on These isting insurance features pockets of are: coverage underfunding by limiwithi ting n The PBGC's ability to meet its future obligations depends also upon the introduced 1992 in Congress. The 1982 report highlighted a request for higher The President's FY 1993 Budget proposed extensive changes for PBGC that were Table 4 guarantees, individual plor ans increasing . As shown coinsurance in table 2,by PBG sharing C's curr losses ent expo .... the sure keystone represen to ts a sound a health of the private defined benefit system as a whole. PBGC reports that in the premiums aThe Department and of Labor more published legislative asset allocat _ o proposals. ion of singleemployer The 1983 definedreport benefit_ans revised with 100the or more premium pa_cipants introduced in legislative form by Senator Majority Leader Robert Dole (S. 2485) Funding Ratios of Single Employer Defined Benefit Plans, 1977-1987 based on 1987 5500 forms. Asset allocationin 1987 was: equity-22.9%, bonds-16.7%,cash-11.3%, real estate-0.8%, insurance significant program improvemis enlegislative t for the agency; changes ittocurr strengthen ently stand the s insurance at 40 percen fund." t of the • As of year-end 1988, FSLIC-insured savings institutions were much more aggregate defined benefit plans have $1.3 trillion in assets to back $900 billion in request and the proposals. The 1984 report found a positive income year and a and House Minority Leader Robert Michel (H.R. 4545) last March. Most recently, unaUocatedinsurancecontracts-22.4%,pooledfunds-20.4%, and other-5.5%o (DOL, 1992). concentrated in securities sensitive to downturns in the real estate market averageThe ove 1991 r 197annual 8-1986. report Therefor carried e, unl the ess cover legisla theme: tive ch "Strengthening anges are madethe that benefit liabilities. Available evidence sugge Funding stsRatithat o approximately 85 percent of positive claims year with a higher premium request but a spreading of the deficit The Effects of Underfunded Defined Benefit Pension Senator JAmes Jeffords and Representative J.J. Pickle introduced legislation cause employer than defined s to te benefit rminate pension well-fund plans ed are defin today ed benefi (charts t plans 1 and en-2). mass Defined e, thus Pension Safety Net" The report stated: "It is becoming clear that we cannot pension plans have assets eqlm| to or exceeding 100 percent of liabilities, up from being funded from 10 years to 15 years. proposing further reforms for the PBGC (S. 3162 and H.R. 5800). The House Plans 1on 977 Plan Retirees 85.0% and Plan Sponsors denying PBGC a base of premium payers, a general taxpayer bailout would not be achieve bene the figoal t pension of financially plan asssound ets are pension highly insurance diversified. without legislative 45 percent in 1981, and 38 percent of plans have assets in excess of 150 percent of The 1985 report pushed for legislative change that was enacted and Ways and Means Subcommittee 1978 on Oversight 84.2 held a hearing on these proposals on necessary. • S&Ls were given new investment powers in 1980 and many marginally changes." The year brought adverse court decisions and major terminations. The reported upon in the 1986 report (SEPPAA) along with a premium increase to liability for accrued benefits 1979 (table 3). 3 The 91.0percentage of plans that were fully August 11. by This does not mean that the PBGC program does not have problems or that report states: "without further changes in the program the deficit could approach capitalized institutions believed they could grow their way out of their $8.50. This legislation fundam 198 en 0 tally rest 1rict 07.0ed the circumstances under which funded on a termination basis increased every year between 1981 and 1987 and The descriptions of the PBGC situation have revolved around the word changes are not needed. Change 1981s may be 106.9 needed in order to reduce "abuse" and $18 billion by the end of the decade." problems. The rapid growth of agency-guaranteed liabilities does not leveled employers offbetween could termi 1987 nate andan1991. underfunded plan and "dump" liabilities on PBGC. Chart 2 "crisis," amid comparison to the "S&L fiasco." (Martin, 7/28/92). Most recently it 1982 115.4 maintain participants' retirement Dallas security. L. Salisbury, As currently structured, the pension The appear 1991toreport be the notes case that with insured PBGC. single-employer plans have $1.3 trillion The 1985 report also stated, however: "Unfortunately, the legislation is not Mortgage From 1977 to 1987, Asset Dis the tribution funding of FSLIC status -insuredSavings of single-employer Institutions defined benefit has been turned into an election issue, with statements being made that can only 1983 124.7 President Loans-53.8% in assets and $900 billion in liabilities. It states that troubled plans, concentrated insuranc •e Bess tyste judgments m createsarea financi that fraud al incentive and mismanagement for employers existed to underf in und abouttheir 60 sufficient to secure the program's future. The PBGC now faces a financial crisis be said to stretch the facts. plans has significantly improved, rising from an average of 85 percent funded to 1984 128.8 in steel, auto, tire and airline industries, are underfunded by $40 billion, with $13 defined benefit plans. TheEmployee vast majori Benefit ty of Research sponsors Institute maintain well-funded plans percent of \ the S&L failures and that it contributed to the failure or the that poses a serious threat to the future of its single-employer insurance program. 1985 136.3 129 percent funded on a termination basis (table 4). Since 1980, defined benefit I was at PBGC during 1977 and 1978. I had the privilege of working with billion despite in insolvency thi financially s incentive, in troubled perhaps but some about companies. do no 25 t. percent WiThe thoutof report c the hange cases. notes s, underfu a Evidence $31 nbillion ding of such with single in the 1986 132.4 Payments to current retirees are not at risk in the immediate future, and there is Senators plans on Jacob averageJavit have s and beenHarrison overfunded. WilliAma The on increase early revisions in funding ofratios the PBGC most likely 1987 128.6 defined benefit system is likely to slowly improve if historical trends continue. employeractivity plan liability among single-employer with the following pension breakdown: plans is"probable, almost non-existent. $776 million; sufficient time to make the necessary changes. But the need for changes must not statute. reflects aI combination had the honorof of factors, directing including the study higher effort contribution that led to rates "reform" needed of the to Were more firms to begin t_king advantage of the system, the financial picture reasonably •As S&L possible, s found $13 themselves billion; remote, constrained $18 billion." by limits on the amount they could be ignored." The report highlighted the fact that the "underfunding of a small meet minlmum funding standards, favorable investment returns on equity, and PBGC Multi-employer program and Washington, the present D.C. stability of that program. I have Source: U.S. Department of Labor, Pension and Welfare Benefits Administration, Trends in Pensions, John A. Turner and Danie could deteriorate. The lend report to a single states: borrower "PBGC they represents began to a major sell off portion pieces of of the the government's loan to other percentage of private pension plans threatens the PBGC's future." the use J. Belier, of higher eds. (Wash interest ington, DC:rate U.S. De assumptions partment of Laber, to1989). discount future benefits. participated in ongoing reviews of PBGC, including a PBGC Advisory Committee hidden Itliabilities. must be realiz Theed defined that general benefit tpension axpayer plans interests insured lie aby s wthe ell in PBGC institutions (loan participation). Many of these secondary lenders relied on The 1987 report highlighted an extraordinarily successful legislative effort Despite the sound aggregate funding status of the defined benefit system, Privatization Task Force in 1982-83, and presently serve by appointment of policymakers giving attention to the long-term tax consequences of public pension comprisethemore underwriting than 20 percent capacities of the of nearly the originating $4.5 trillion S&L. in Although federal insurance. a large by the agency: significant change in the single-employer program and movement the net deficit of the single-employer insurance system can be significantly President C_ _Bush on the _ PBGC _ Advisory °,_ Committee. 24 September 1992 Table 5 and retiree medical benefit promises that have not been advance funded. Private Fortunately, proportion the assets of defined of thebenefit pensionplan plans assets exceed are liabilities placed in by bank several pooledhundred funds to a variable rate premium structure. The changes in the Pension Protection Act increased by single occurrences of distress terminations of large pension plans. Concerned by developments in 1991, EBRI undertook its own review of Comparison of PBGC Premium and Investment Management Fee Basis Points billion defined dollars. and benefi similar t The plans inve worth are stment appro ofsthe xima where sponsoring tely there $400companies isbillion a sharing overfunded provides of investment further in the aggrega results, security. te.it of 1987 again tightened the minimum funding standards, with new minimum PBGC publishes an annuA! list of the top 50 underfunded pension plans. PBGC and in May 1992 published EBRI Issue Brief No. 126: "PBGC Solvency: PBGC has been the focus of attention during the past two years because of a Nevertheless, within a generally healthy defined benefit system, pockets of is fundamentally different than loan participations that have been contributions, quarterly contributions, a lien for missed contributions, and new Underfunding by plans on this list increased from $14.2 billion in 1989 to $21.5 Balancing Social and Casualty Insurance Premium paidPer forspectives." PBGC GuaranteeThe PBGC and its underfunded present characterized deficitpensions of $2.5 as bcan illion "a be transfer an found, d a po of primarily te risk ntialfrom sho ina rtfall unionized party ofwho $30 manufacturing lacks billion- courage S40 billion to and onein restrictions on funding waivers. Also, PBGC's position in bankruptcy was (expressedin basispoints) a underlying billion in 1990. statute 4 Three still have firms,room General to evolve, Motors, but Chrysler, both haveand grown LTVprogressively are responsible today's dollars over the next 30 years. This situation has been compared to the transportation sectors of the economy." improved whoand lackeven s knowledge. tighter requirements ''5 for allowing a plan termination were stronger since 1974. for 97 percent of the increase in underfunding ($7.1 billion). (PBGC has reached savings and loan crisis by P sa ome, rticipa yent tRe during tires fiscal 1 Pa 99 rti 1cip alone, antRetir com esbined unfunded The report noted the bankruptcy reform legislation set forth in November • From 1981 to 1987, S&Ls insured by FSLIC were permitted to use enacted. PBGC handed the plans terminated by LTV back to the company. The Employer-sponsored pension plans represent an important source of tentative agreements with LTV to limit exposure. General Motors is the agency's / \ liabilities of civilian and milit inary 1992 ap tean ge sion 65 plans increa in2032 sedatag bye 6 $52 5b billion. Actuarial 1991, and promised funding and guarantee reform proposals as well (included in number accounting of plan terminations options that increased were not to in 10,865, agreement but with terminations Generally Insured with Accepted Mortga asset ges/ retirement income for Americans. In 1990, private pension retirement benefits of largest premium payer.) The same three companies are also responsible for 64 Maximum premium 2.73 33.85 deficiencies of federal retirement annuity programs consist of $864 billion in the the 1992 budget and introduced in legislative language in mid-1992). The annual reversions declined. The theme of the report was "Keeping Promises", and it again Accounting Principles (GAAP) and have been described as "self-deceptive $141 billion accounted for 31 percent of the $457 billion in total retirement benefit percent of the top 50 companies' unfunded liabilities. Funding ratios of plan Minimum premium 0.72 8.93 Socurities-15.8% Other-21.7%o / _ Mortgage-backed Civil Service Retirement and Disability Fund and $702 billion in the Military report letter from PBGC Executive Director James Lockhart concludes: highlighted the strength of the overall system. accounting procedures" by the Executive Director of PBGC. In contrast, payments sponsors listed (U.S. ranged Department from 6 ofpercent Commerce). for LTV, By to comparison, 94 percent private for National pensionSteel, Cash & Govt. Other Retirement System that future taxpayers will have to pay. "Bankruptcy, funding, and guarantee reforms will ensure that PBGC can continue The 1988 report stated: "Serious problems do remain, in part due to the pension plans must adhere to very conservative accounting measures benefits totaled $7.4oo billion oo Average in Securities 1970. _ Annual -o 4.2% Factoring Fees Paid contributions to Loans Outside -4.4%Managersand earnings, along ._ o _ with an aggregate overall funding ratio of 75.5 percent. The underfunding of When considering any retirement income policy proposal, its potential effect to support the defined benefit pension system." uncertzin under status FAS of 35 the while contested the vast LTV (expre majority splans. sed in ba of Unpredictable sisthe points) large defined catastrophic benefit plan claims with benefit payments, private sector defined benefit pensions had an estimated plans on the "Top 50" list is defined as unfunded guaranteed benefit liabilities on PBGC should be considered. For example, legislation, like OBRA '87, which This review of PBGC history, from the perspective of the 1976-1991 PBGC and economic downturns could still threaten the agency's financial stability. But sponsors follow GAAP procedures, at least for those events defining their tax expenditure (using government methodology) of $8.2 billion in fiscal 1993; (liabilities for non-guaranteed benefits are not included). Being on the "Top 50" 1990 limited the ability of well-funded plans to receive further deductible contributions, Annual Reports to Congress, suggests that the agency and the Congress have with the solvency FY 1988 and pension net worth reforms, determinations. the pension insurance system now is total tax expenditures for public and private sector employer-provided pensions list does not mean the plan is in danger of a distress termination. PBGC acted served on toare consistent duce the "basis PBGCtosafe improve ty net." theInprogr addit aion, m and the the Reven underlying ue Act ofstatute. 1978, considerably more stable and equitable. The reforms have provided greater was Source $56.5 : Saving billion. s Instituti1 onsSourcebook, UnitedStates Leagueof Savings Institutions,1989 All Corporate Funds 44.0 estimates that companies experiencing financial troubles accounted for $13 billion which created 401(k) plans and allowed tax deductible employee contributions to The reports make clear that the overall status of the system has remained strong, Oversecurity $1 billion Perhaps for the the system most and important the benefit distinction s it protects. s 40.7 between The the program two programs is better is funded that of pension plan underfunding in 1991, an increase from $8 billion in 1990. profit-sharing and stock-bonus defined contribution plans but not to defined $501-1,000 and duemillion to past reforms has gotten stronger 40.6 over time. The reports also state and many of the opportunities for abuse have either been eliminated or reduced. funds are not generally available to the participant on demand in a defined benefit PBGC Financial History and Current Financial Status Seventy-five percent of the listed plans' underfunding is attributable to plan $251-500 million 52.5 benefit plans, may well have indirectly harmed PBGC. Finally, the Senate version clearly that the vast majority of participants in defined benefit pension plans face As a result, employers, workers, and retirees can all look to a brighter future, pension plan prior to termination of employment. At that point approximately 40 Concern regarding PBGC's financial viability arises from a current agency sponsors in the airline, steel, auto, and tire industries, most of which sponsor flat $101-250 million 43.2 no of th risk e pending of accrued energy benefit bill loss. (H.R. Reports 776) inclfrom udes the a pro General vision Accounting that could have Office, the the confident that defined benefit pension plans will continue to pay benefits as percent of plans offer a lump-sum option. Although there is some potential for deficit of $2.5 billion in the single employer fund and the estimated $31 billion in benefit plans. Pension plan underfunding for an individual plan sponsor on the $50-100 million 44.9 United Mine Workers pension fund reaUocate $210 million to pay retiree medical Congressional Budget Office, and the Joint Committee on Taxation, as well as promised -- and that the PBGC will continue to protect them." lump-sum distributions to negatively impact the cash flow of a pension plan, this Under $50 million 43.7 underfunding top 50 list ranged within from individual $47 million single-employer to $7.1 billion.plans, It should $13 billion be noted of which that some is benefits _- and would create C_1 significan _"_ t o new liabilities for employers who had o others, make clear that there is not agreement yet among analysts upon the The 1989 anm_al report (the first to be signed by PBGC Executive Director could be controlled (at least theoretically) by ERISA Section 4045, which allows considered plan sponsors by PBGC listed have to pospension e a seriou plans s riskthat because are overfunded, of sponsor's but financial since the trouble. PBGC Source: previ Employee ously Benefit employed Researchmine Institute worker tabulation s. s; Tand his Gpo reenwi licy ch propo Associates, sal Going has Global, a direc Good t impac Going, tInvestment on specific changes that should be made to the PBGC program. The history noted JAmes Lockhart) noted that "defined benefit plans are healthier than ever before. PBGC to recapture part of any distributions that start within the three-year Table 1 presents a time trend of financial information for PBGC and the insured Management, 1991 (Greenwich, CT: Greenwich Associates, 1991). above the affec indicates ted employ thatersthean Congress d their abil will ity enact to fund reforms their to own assure pension that plcrisis ans, and will co not uld PBGC, however, remains exposed to the risk of some large underfunded pension period immediately preceding the failure of the plan. Certainly, there is only system. aBased on the annuity purchase price of $9.36 per dollar of annual income starting at age 65, and the 1992 maximum monthly th occur, erefore and ult wi im llate enact ly harm additional PBGCreforms . This doe in the s nofuture t mean ifth needed at it shto oulinsure d not stability become lplans...and imited evidence is determined of catastrophic to encourage "runs on better the bank" funding from of the pension standpoint plans and of defined to per participTable ant benefit 1 demonstrate of $2352.27. s the willingness of Congress to adjust premiums to of PBGC. law, but the decision to affect PBGC should be understood and explicit. benefit m_Ake itplan moresponsors difficult or for PBGC. employers to terminate these underfunded plans .... As we 2All figures are in 1986 dollars. bAnnuity maintain prices for the participant cash s flow retiring solvency at age 65 in of2032 the are agency. discounted Premi at 6.50upercent, m income the immediate is currently annuity interest at an rate fol Clearly, if we are concerned about insuring the fiscal viability of PBGC, we January, 1992. Annuity price is expressed in 1992 dollars. Moreover, after a termination the cash flow position is also markedly continue to protect the pensions of workers and retirees, we look to the future with 3Throughout this discussion termination basis refers to basing funding ratios on benefits accrued and assets all time high and the cash flow is quite positive. According to PBGC, "Although _o _ PBGC should Premiums carefully thi in nk Perspective through the potential implications for PBGC of all policy accumulat great confidence. ed at the end of This the plan confidence year the is assum bas ped tions on plan the s would soundness use to calcof ulate theliabilitie defined s forbenefit different between the two programs. Depositors in S&Ls were typically paid cash flow could turn negative as early as three years in the pessimistic forecast, The views expressed in this statement are solely those of the author and should not be attributed to the propo standard sal Some s termination rela argue ted s. to T that ermination penssignificant ions baan sisdfunding retir increases ee does he not alth in refthe erbe to nefi minimum PBtGCpl 's ans. calculation per Weparticipant of sh liabilities ould gu for ard pension plans, the recent legislative changes that reinforced the program, and the immediately, while PBGC can spread payments over a long period of time. Employee Benefit Research Institute, its officers, trustees, sponsors, or other staff. The Employee Benefit underfunded terminations, using termination mortality and retirement age assumptions. public trust, and we should continue to take actions that assure that promises premium that all plans must pay could lead well-funded plans to terminate their quality and dedication of the PBGC staff." Although most of the discussion here has dealt with the similarities (or lack Research Institute is a nonprofit, nonpartisan, public policy research organization. 1The breakdown for the estimated tax expenditure of $56.5 billion for employer-provided pensions is as 4pBGC derived its top 50 list using a computerized data base created by Standard & Poor's Compustat made are promises kept. We should "tell the people" the truth; we should not plans in exchange for a defined contribution plan or other possible employee thereof) The between 1990 report the exposures highlighted of S&Ls that and the variable PBGC, the ratemost premium important was increased difference follows: private defined benefit, $8.2 billion; private defined contribution, $19.3 billion; public defined Service, Inc., which contains corporate annual reports for fiscal years ending in 1990. PBGC supplemented benefits. "fear-monger. There " is no data to prove or disprove the hypothesis that the PBGC to $19 per $1000 of unfunded vested benefits with a maximum per participant benefit, $27.9 billion, and public defined contribution, $1.1 billion. Keough plans had a tax expenditure of the database with data from corporate annual reports for fiscal years ending in 1989 and earlier fiscal years, premium is close to the level where it would cause plans to terminate. However, charge of $72 from $16 per $1000 of unfunded vested benefits with a maximum of $2.7 billion and Individual retirement plans, $7.1 billion. (EBRI compilation from Joint Committee on and where available, 1987 and 1988 5500 forms. PBGC also sent letters to plan sponsors containing their examining the fees pension funds pay investment managers provides a reference Taxation data and EBRI estimates by plan type.) plan $50s' per fundin participant g information for for comm the enew nt prior fiscal to publication. year. The year brought a significant 5Koeppel, Jeffrey. "The Insolvency Looking Glass." Best's Review (September 1991): 37ff EMPLOYEE BENEFIT RESEARCH INSTITUTE 2121 K Street, N\V / Suite 600 ,' _'ashington, DC 200_,7-2121 Telephone 202-659-0670 FAX 202-77_-6312