EBRI EM PI.()YEE STATEMENTT_hlo OF DALLAS SALISBURY gTATEMENT OF Table Tab DA Tle Tab abl g LL eleAg t gALIgBUR¥ Table 4 Availabl a_ts a unl_g_ 51 eeumula pareor an e l_ fion gi tue _ _l of vid al_ t ti eo plan.g v nc r t_ _i al eo eb n h " guggeat_ a ana (_ho_a ng_ fu finds _ ar in hha_ fe or that 199 minfra_ a provid_ d 0 app e . go r th ta' oximatdy eial atue_u ea ag lump um _eu r_inv_s_n_ r ei_y m gum 85 ploy b_nafi_ per distribution er een_ _ could toof for tep rm r_tira_ en,ion also in prio ate hav_ r plan_ w and _o ell- 6g th fnifiean_ un have dr deda_ta b a have een defin b_en aed dvance con intr d bo ribution duced and issu fo plan esmake tha while t _he must all agency ow bein cons g mid their ore ered effective defined when and be ma nefit ki_o ngen_ure ppo lanlicy {:o it_ bec deco is me ions the law. For hhis reason the issue of creating a level playing field b_ween BENEFIT EMPLOYEE BENEFIT RESEARCH INSTITUTE Exposur Employment, e LevelsPens Facing ion Total Pension Coverage, Retirement Ben and efit Benef G Pua ensra ion itnty Payments Plan Corporation's Participation Single-Emplo of the Civil T-89 yer ian, Pension Benefit Finan Guaranty cialAssets Corporation of Privateand Single Government -Employer Pensio Insuranc nFunds, e Activity, 1982-1991 1982-1991 Surveyed Firms' Funded Ratios, by Percentage of All Surveyed Pension Plans, 1981-1991 PBGC's Financial EM Condition PLOYEE BENEFIT RESEARCH INSTITUTE RESEARCll even more underfunded. equal a sp de retirement). dv o fiuses e ned rse to be an or impl n d exceeding ei fit d ERISA cat epen p iola ns d ns ents de fe 100 f or ined n-m the acc percen ass o both fut unte e,ur tthus d e as offinanc f pensions. liabi or dethe nying liital ies rema ,wP ell Changes up BGC inb ifn r eg om in ag49 base 45 o in fpe P percent the r of B cent Gpremium law C. ofin through to19 tal8pa 1b ;enefits ye 31985 8rs pe , r acent of affecting d future efine Nonagricultural d fiscal co the ntrib solvency. defined utionWage benefit anIn dand d addition efine Salary system d , benef Work other and it P Force, proposals plans BGC. sh 1989-1991, oulhave d bebeen a and ddresse discussed Characteristics d. that of Plan ,_ ITM V_ ¢_1 V'} IProg ::: ram, 1978-1991 I NSTITITE Participants, 1991 Ratioof Accrued Retirement Benefit Payments (billionsofS from 1 U991 MMARY Private dollars)and Public Sources, FOR Single THE Empl EDUCATION oyer AND LABOR SUBCOMMITFEE ON (tabl 0 e 2). ¢',,I ._= p gle ans neral have Clea taxp rasse ly ay ,etif r s ba w ineilexcess out are c shou once of l150 r dnen d pe eva r ecent bo r be ut n of insu ec liabili erss inag r ty ythe . forfiscal accrued viabil benefits ity of pens (tab io len 4). plans The moved While the law PBGC and the has pension a deficit,sys ittdoes em in not thepose direc the tiondangers of capital of the accumulation. "Savings and Loan Requirin could Enhancedpotentially F8 uPBGC rt interagency her bankruptcy prem impact iimpact um ithe pro nc assessments r tection eases financial shoul status d be of viedefined wed as benefit a last res plans ort dand ue to thus the Participants Plans Trusteed and Selected Years 1970-1990 Federal State and BenefitsoverAssets 1981 1982 1983 Employer 1984 Sponsors 1985 1986 Employee 1987 Included 1988 Characteris 1989 ti1990 cs of 1991 Year Benefits Paid LABOR-MANAGEMENT Receiving Benefits RELATIONS Pending Trusteeship percentage This of does plans notthat meawe n r th eat fuP lly BGC funded does on notahte ave rmina pro tion blems basis or tincreased hat changes evea ry re y no eatr Crisis. The and P Tax " BG According Re C,D form w ef einsh ed Act ould to ofPca Def BGC, 1986 refu ined began lly thethink agency aM series uth lti- ro had ug of ha changes the Pri deficit vate pE otential xof p ending osu $2.5 Go rver eimpl billion nm with ient cati the in ons 1991 Loc of alall in th pe olisingle- cy PBGC. potentialTo There Acc These that help ordi has proposals they nassu g been to rc eo E ul Employment that BRI very dinclude in ta be dlittle b uce nefit ulatthe io ov interagency p ns e rr use omises fun ofd of the ed Ran pension made M ad coo ef arirch ne dina are d fund 1992 ti benefit kept onassets Cu , regarding in rr PRan BGC plans ent to b Po fund could tpu o P te lBGC ati rm benefit o Employees inate. n in Su recent rv Inc ey luded , The private pension system is strong. The number of pension plans continued to grow significantly ($ Millions) Sourceof Benefita (millions) 1970 1975 198 (percentage) 0 1985 1986 (percentage) 1987 1988 in19 Plans--1991 89 1990 Year benefit contribution employer Insured Retirement Government Total be 0.00-0.49 tween 1981 and 198717% and leveled 8% off 6%between 4% 1987 3% and 2% 1991.2 3% 2% 3% 2% 1% U.S. HOUSE OF REPRESENTATIVES even after the enactment of ERISA in 1974. From 1975 to 1988, the total number of tax-qualified needed. Changes may 1969 be 1990 needed 1991 in 1989 order 1990 to redu 1991ce abuse 1989 and 1990ma 1991 intai (n millions! partic LI:P ip,/ a];Z nts' _QJ_ infrastructure p in employer Unemployment ro M posals arch 1991 fund relate ,investment 66.6 d and Compensation tomill there pens io ,io ncur ns deficit civ ren an ilian tAmendments ly dreduction ret wor exists iree kehealth r an ,s, and estimated or of55 benef 1992 guaranteed .6 pe ithat tr$40 cent plans. made billion oretiree f all W funds esuch in sh health underfunding oul less wor d g ke ua rrd s, public from years Primar aregarding yclarified emphasisand pensions. shstrengthened ould b Ideally, e placed position asonoted n chan in g in es bankruptcy the inintroduction the lawcases, to strto en including g this thentesti the mony, but notall 1978 145 ($billions) 0.50-0.74 17 13 13 8 6 5 3 4 4 2 4 employer-sponsored plans (both defined benefit and defined contribution plans included) increased ($ billions) 1979 (D 157 AII Workers 119.1 119.3 119.8 54.2% 55.3% 55.6% 42.7% 42.9=/043.4% 52.0 100.0% FEBRUARY 2, 1993 re trust tirement , an Fr dom w se e197 cs urity. h7 oul to d 19 As conti 87, curren n the ue funding tly to ta stk ru e c actions stured tatus , of the thsing atpassure ension le-emplo tih y nsur at er pr aom n defined ceise sy sstm ebenefi m ade cre are t ates plans a within available 0.75-0.99 1991 individual prior to $ retirement single-employer 514 21 age. 24 More plans---S12 17 thought 15140 billion ,0is 00 13 needed of 14 which in this 10 is area considered 11 in order 164411 byfor PBGC 11 10 care fund legislative limited worked in benefits g to fo or fa and all an posi for defined empl regulato ticertain onoye on r benefit rycreditor employees. that actions spons plans committees. taken ,orPolicymakers enc ed by o aura pens all gP eio units BGC the n should plan growt of was th , e i.e. h given seriously government ,and they ade statutory w ve elopment scrutinize re c should ovlien ered of be by a from 311,000 to 730,000 and gross participation (active workers, separated vested, survivors, and 1980 91 O_ 1983 526 286 79 252 112 311 1,566 1.00-1.24 23 26 25 20 21 17 16 16 18 20 25 1990 369 110,380 1,558 Private Pensions $7.4 $15.9 $36.4 $97.7 $120.2 $120.8 $124.1 $133.6 $141.2 Sector c retirees) in such plans rose from 45 million to 78 million over the same period. The assets in these has promises fi the nan significan law cialtoinc kept. be tly en "rationalized" tive imp for roved e 1981 m,ployers r and ising for tfrom oemployers undan erfund average and their of individuals de 852 5 fined percent beto ne funded fit knoplans w wha to . 129 tTh the epe vr acent st to such plan pose proposals (dea fine risk d b because enef in terms it an ofdof /sor pons their d ors' efine ultimate financial d contri impact buti trouble. on). on the Mor Table defined e than 7 presen 4benefit 3 pe tsrcent a time trend of considered ne and 1984 w prio define rity d in 535 in benefit terms ERISA of plans that impa 322 , h an ct as d on not lim defined ibeen t the 81 recognized exposu benefit re291 plans ofby PB the and GCcou tPBGC 130 o rlts iabi be liobligations. ties. cause357 it was This 1,716 198 1.25-1.49 9 353 11 12 18 21106,770 19 21 20 20 1,50119 20 22 Federal Private Employee Retirem 103.9 entb104.5 6.2105.414.5 54.6 28.055.6 41.1 55.7 42.2 43.2 4344.9 .4 43.7 48.1 46.0 50.6 88.653.9 plans grew to $2.9 trillion a1982 t the end of 1991 and the Federal Reserve 49 estimate for 1992 is $3.2 trillion. 1985 643 392 121 347 149 405 2,057 manufacturing 21.5 21.2 20.6 66.2 66.9 66.2 56.1 56.7 56.1 34.5 56.4 Stat 1988 1.50 e or and more Local Employe357 e 11 17 21 32110,300 38 41 48 47 1,455 45 45 38 funded m financial government ajority Ion am of informa asponsors ptin lermination eased tends. tion tom A for ap adecision int pe basis PBGC a ain r befor we (tab and to ll le e -require funded the 5). youiSince ns thi ured rollovers pl s a mo 1980 nssystem. rnin despite , g defined andto preservation this disbenefit cuss incen thti e ,p ve lfi ans ,n fa or b nut c on ialsom aver eage do no might ( pension 52 t m also ill include iosystem added n) of a the to land l wor tdevelopment hePBGC--to ke Bankruptcy rs actually the ofCode. a pa degree PrBGC ticipate that impact d such in an statement. proposals employerMoreove weaken plan. rC , the ov an erage and Enhancinginformation collection nonmanufacturing 82.4 83.3 84.8 51.5 52.7 53.2 39.8 40.0 40.7 11.6 2?_2 1983 44 1986 Retirement 739 447 4.0 8.2 14315.1 25.5 410 28.4 170 31.2 34.1 469 36.6 2,378 39.2 1987 300 109,700 1,376 Public 5.7 5.6 5.6 88.4 88.8 90.5 82.1 80.7 83.4 4.7 9.0 1984 32 1987 770 471 148 459 188 517 2,553 ERISA in general, and the provisions related to PBGC in particular, have been amended many times since have example not. Wi been Table ,thout might overfunded. 7ch demo a serve ngnstr es,to ates und The encourage erfund inc the rease willingness ing defined in with funding inbene of thCongress efit r defined atios plans. mos to be t nefit adjust likelysyr p stem eflec remiums ts is alikel combination toymaintain to pa funding condition inte 1986 Number r Other tic rgovernmental ipat The of status ioPlans of ngovernment the rates of Pension defined i261 body nc 9.5 r 575 ease needs Benefit should 9.2 benefit d 813 fro 8 info 8m be Guaranty plans rthe ma 700 created Statement 29 ir ti,on .81989 they 919 32 Corporation on to .2le 90,750 could as ERIS v32.4 els su 846 reA of only formal p 5l4.2 14.0 a(PBGC). 799 ns serve pe available reviews r 4cent .5720 to My 14.3 worsen and of on name 786 42.7 such a1,315 any mo 1is .pe 3 787 rercent,781 2.4 801 Changing PBGC accounting methods from cash to accrual C Subtotal 1985 17.6 38.6 79.5 164.3 190.8 40 196.9 206.3 220.8 234.3 1988 857 522 170 516 208 606 2,879 1974 in an effort to better achieve the original purposes of the Act. PBGC has consistently undertaken 1985 170 74,800 1,191 FirmSize r of PBGC Deteriorating the s Dallas espect low fac cash ly tors iv problems. Salisbury. improv ,ely flow inc plan (ta luding solvency ebif le funding I h 3 am is ). highe tor president of by ica rthe l troubled con trends agency. tribution of sponsors c the onti P Employee remium nue. rates W needed ere income Benefit more to is mee Research ficur rms t rminimum ently to be Institute g at inan ta funding all king time high timely proposals basis. The as budge well This t as would trea po tm 1986 licy en allow t coo of rdination. P better BGC enforcement couInterdepartmental ld be chanby ged 61 DOL from and coordination a ca the sh Internal accounting should 1989 1010 623 200 572 229 735 3,369 analysis to identify areas where further change would improve the system. 1984 169 64,700 1,118 O_ Fewer CO lhan25 _D workers ,-_ 2_ 8.2 -_ 28.7 0 28.5 _ 18.5 _,_18.6 19.2 13.6 13.6 14.3 4.1 7.9 Source: The WyattCompany, Survey of Actuarial Assumptions and Funding: Detailed Survey Results Pension Social Security Old-Age 1990 965 584 194 636 251 752 3,382 Average 75 25-99 workers 16.9 16.5 16.7 38.3 412. 40.5 29.4 31.2 30.7 5.1 9.9 1983 137 - 55,400 >, 1,021 s a and tdv anda ant the rds a Measures In D ge ,cash efine response favorable ofd flow the benefit should system is toquite investmen the p,lbe ans increasing th po co esitive. ha fi ns t n v ide a er n eturns rhist cial ed According interest ori p to ic cally on ture prevent equi inbeen cou PBGC to ty,l P financially d BGC and the dand eter c ,tor he "iAlthough its or ne use a r financial troubled te. sto of nehigher o cfas status the h flow inte priv , rest ate could rateturn (EBRI), Revenue be basis gin and Su to at ra vivors an the Se nonprofit accrual rvice stage Insurance ,(IRS), of accounting nonpartisan, proje and ct be definition tte basis. r public planning This and policy change con by tiP research nue BGC. would at I each r organization ecommend provide step ofadevelopment. more that based a in Plans with 1,000or More Active Participants, 1989, 1990, and 1991 (Washington,DC:The Wyatt 100-499workers 18.1 18.3 18.3 57.8 59.5 59.6 45.8 45.6 45.9 8.4 16.1 1991 1,208 780 238 678 276 877 4,057 1982 94 50,900 904 PBGC's ability to meet its future obligations depends upon the health of the entire private defined benefit Benefit 500-999Company, workers Paymentsc1989, 7.31990, $28.8 7.0and 71991). 2 $58.5 69 $105.1 .9 70.$167.2 9 70.8 $176 54.8 .8 $183.6 54.6 55.7$195.5 4.$208.0 0 7$223 .7 .0 Before the assumptions It musttobe discoun realized t fu that ture genera benefits. l taxpayer interests lie as well in policymakers Washington, pens sponso negaio tive n rs system. as from eaD.C. rly defunding How as I was three ev 1990 er with ,years their thethe repla in has Department ns the .been pessimistic PBGC a gene has of r Labor al found fortecast ren 32 (DOL) d that a , tow the plan aand rd fund funding the then has esta PBGC ample blishment assets to Th EBRI method accurate is should prepared be picture developed probably an ofin-depth PBGC apply for elect and analysis torthe onic all aspects value of filing PBGC ofof of advance ERISA, Fin orm May 5500 funding not 1992-- informa justEBR/I P insured BGC. tion ssue The to plans. Brief allow National At 1,000ormoreworkers 46.6 48.7 49.1 76.7 78.0 78.1 61.3 61.5 61.8 30.3 58.4 system. PBGC reports that in the aggregate defined benefit plans have $1.3 trillion in assets to hack $900 Note: DatafromThe Wyatt Companyare basedon a surveyof pensionplanscovering1,000 or moreactive 1991 (percentage of total pension assets) 40 Total $46.4 $97.1 $184.6 $331.5 $367.6 $380.5 $401.8 $428.8 $457.3 giving billion in employees. While att benefit ention the liabilities. tdefined The o the 1990 long-term Available benefit surveyc evidence ontained st ya stem x conse suggests single is quen well-employer c funded that es o approximately f pu plans inblthe ic (90 pension aggrega pe 85 rce perc nt) tea ,e and nd nt the of multi rer pension ti eree employ medi plans ecal r plans N tends in pay Hours o. the 126: iWo tsto early rk liabilities ed deteriorate "PBGC 1970s, Solvency: (benefit I have as plapaymen served ns Balancing approach ts as ) a for representative Social termination. a considerable and Casualty of Such the peri Insurance general defunding od of time public "can (Pension on Benefit o timely Commission the f supp same lavailability emental time,onitP d would rivate ef fo ir neanalysis d provide Pc eo ns nt ions rib (this ,uti a included o way n will plans toinvolve allow in am last obetter n the gyear's la IRS). rg funding e tax employe This billcould of (H rthese s.R. an also 11) dplans prima ,be might parrt y also ,._ "---= 8 Source: PensionBenefitGuaranty Corporation,Pension Benefit Guaranty Corporation Annual Report, (10 percent). Parttimed Subcommittee 25.0 25.1 25.7on Labor-Management 30.5 32.4 32.4 11.7 Relations 12.5 12.3 32 6.1 have assets equal to or exceeding 100 percent of liabilities. 1983 34.0% 18.1% 5.5% 15.8% 7.0% 19.5% 100.0% 1975-1991 (Washington,DC: PensionBenefitGuarantyCorporation,19761992); and U.S. Departmentof be able to focus on these issues. :_ none benefit _ theless promises ,--_ exis0" t _th significan a _0 t have t ¢not '4pockets b _een a of dv underfunding ance funded. o within Privatethe defined system. benefi PBGC t plans that Perspectives." occu the GuaERISA rranty through Co Advisory rpo Ifo ration, ask regoing that Council 1991). the requi full at rAs ed the text noted con U.S. of trthat ibutio above Department review ns ,(percentage , even encou be unde of included rof aging Labor total) rfunded and ea in rlythe plans am record that may of d without efa ine majo d c being rontri pens bion uti counted onsimplification plans as a(as revenue oppeffo ose loss. r d t and to define could d p brenefit ovide plans) a significant among incentive medium Sou Full rc tie: meeEmployeeBene 94.0 fitR94 ese .2 arch 94.1Institu 60.5 tetabul 61.4 ation 6s 1b .9ased on 50.9 data 51.0 from51.8 Richard A. 48 Ip .8polito, 93.9 Committee on Education and Labor 1984 Labor,Pensio31.7 nandWelfare Be 19 ne .0 fitsAdministration, 5.5 Trends in16 Pensions .4 1992,7.3 JohnA. Turne20.1 r andDaniel 100.0 The Economics of Pension Insurance (PensionResearchCouncil,Wharton School, u. cc._ >, estima a The 1985 r J.eBe iPBGC nsured li tes er, eds currently tha .31.7 by (Washington, t the PBGC rreports e exis aDC: rte 18.9 a s a deficit $40 U t .lS. eaDepart bi so tll fion $ $2.5 400 me 6.2 in billion nt bill of unde ion Lain bo rfunding overfun the r, 1992). 16.7 singledemployer ed within in th 7.2 sing e fund. aggreg le-emplo There ate. 19.4 y iser an PBGC ha 100 s .0 an of reti te presently Total rm d this rement, inate sma hearing. ll a will emp member offe lo bring rMy ing yerstestimony pension of asse since the ts 100 PBGC r with .e 0% inc ghighlights ulat r 100.0% eases them. Advisory ory cla 100.0% in ri findings lieu fication Committee. 100.0% of pay from inincreases 100.0% the EBRI's Rev, 100.0% enue assessment changing Act100.0% of 1978 of 100.0% and its100.0% Need Need for new to to allow decide defined and whether require benefit or advance not plans to reinforce if funding the form the continuation 5500 and schedules and growth could of defined be filed benefit on a plans n U.S. House of Representatives Universityof Pennsylvania,1989); PensionBenefit GuarantyCorporation,"Pension nder25years 23.4 22.6 21.7 32.1 33.0 33.4 12.8 12.4 12.5 2.7 5.2 estimated 1986 $4031.1 billion in under18 funding .8 within 6.0 individual 17.3 single-employer 7.2 plans $12 19 billion .8 of 100.0 alncludessingle-employer plans,plans ofcontrolledgroupsof corporationsandmultiple-employer UnderfundingIncreased"Pressrelease, 15 December ° 1992; and PensionBenefit plans be25-44 en, th years $12 Since e fo bi cus llits ion of founding a of tt 62 e which n .5tion 63 in .1is dur 1978, conside 63. ing 6 EBRI th red e 58p .7 has ast by 60 tbeen PBGC wo .0 59 ycommitted ears .2 to cons be 47.9 ca tiu tute se 48. too 2the faa r 47 easonab pres accurate .6 ent ly 30 de .3ficit of 58$ .22.5 401(k) PBGC actuarial and p The rov asisi discusses sumptio agency's ons. ns O ,,deficit, vin er oall some r paying , an while detail increase la trending ,rge issues dlump-sum num and upwa berpolicy rd of dis d ove tr efine ibutions options r time d b,enefit regarding has on exhibited an terminations a g,reat a deal inte Private ractive Pensions P ItBGC is clearly diswas k provided establ desirable ished 16 by .0 for the onemploye 16 IRS. the .4 pTh remi r19 s' is .7 se might pens that 29.5 ionndefined otpromises make 32.7 benefi many 31 to.t8 besmall pension advance 30.9 plan plans 31.2 30.9 noncollectively bargainedplans. 1987 29.4 18.7 5.8 18.2 7.5 20.5 100.0 which is considered by PBGC to pose a risk because of sponsors' financial trouble. However, the 45-64 years 29.4 29.8 30.9 63.8 64.0 65.5 57.3 56.7 58.3 18.0 34.7 GuarantyCorporation,Annual Report to the Congress, Fiscal Year 1991(Washington, Federal Employee Retirementb 13.4 14.9 15.2 12.4 11.5 11.8 12.0 11.8 11.8 1988 28.9 17.9 5.8 18.4 7.4 21.6 100.0 65yearsandover 3.7 3.8 3.6 42.4 43.4 42.3 28.4 27.9 26.6 0.9 1.8 possible b underfunded illion and lossa plans because poten are tia 7l5 of pshortf esponso rcent all funded r of financia $3 with 0 bi lliabilities llion-S4 trouble. 0 ofb $162 The illion billion unde inrtod funded anday ass 'sets do plans of lla$ rs 122 had over billion. the next statistical strengthening sl accele ofow vola er rated tir lity, ate analysis o basis. particula f define the P agency. of BGC dreconomic ly benef could in ithe t plan also security mid-to-late fbe ormat mo issues. r ie on 1980s. ,aggressive an Through d The fundamental 1986 in our enforcement P research, BGC red Annual esig we n of ofReport placed administrators funded, are the be whether st method and in actuaries the of providing publichappy or private assu , but red secto itretirement could r. Minimum lead income to a su funding rge for ipa n rdefined ticipants requiremen and ts DC: PensionBenefitGuarantyCorporation,1992). State and Local Employee 1989 29.0 17.9 5.6 17.7 7.1 22.7 100.0 Hearing on Annual Retirement Earnings 8.6 8.4 8.2 7.7 7.7 8.2 8.5 8.5 8.6 aFiguresare adjustedto 1991 pricelevelsusingthe ConsumerPrice Indexfor All Urban tra l30 the iabi 1990 di yldeficit e ities tia ors. nal of Th at "f 27 about is i$4 nal .8 situ billion pay" ati $162 on ddue efine bi 16.9 hll aion sto d been LTV. b and enefit comp assets The 5.3 plans ared 1991 tota int to ling deficit othe 19.4 "cash about sav of ings b$2.5 alance $122 abillion nd 7.6 bi '' ll l1 o ion. d aefine n iscr Thus higher isis d22.9 benefit by the than some y at ,100 y any et .0 strive be recove neficia rto y ries contribute options. at the to lowest the formulation cost to themof and effective the economy and responsible as a whole. health, However, be should nefit plan be strengthened growth and , im continuation. pediments to advance funding should be eliminated, Lessthan$J0,000 38.2 36.8 36.1 27.9 29.1 28.9 10.7 10.3 10.1 3.6 7.0 The 1991 PBGC exposure of $40 billion was lower than at anytime between 1978 ($145 billion) Consumers(CPI-U). 1991 $10,000-$24,999 29.1 43.2 18.1 43.0 42.1 5.3 57.2 56.9 55.9 16.9 45.6 44.2 7.3 43.1 23.2 18.1 34.9 100.0 Subtotal 37.9 39.8 43.1 49.6 51.9 51.8 51.3 51.5 51.2 and 1986 ($61 billion), except for 1984 ($32 billion) Table and 1985 5 ($40 billion). Current exposure is we dur Strength time reing other 75fi percent The sof ca than lPrivate Financial 1991 1986. funded alone Pension While Status ,in com theSystem the bi of aggregate ne the repo d un Pension rted funded indicating deficit Benefit liab includes iliti that Guaranty es o if f ta ci he llvi troubled present lia Corporation n andvalue sponsors militar ofyliabilities pension plans welfare, over Pensions, $25,000-$49,999 the sugg and PBGC, last estsretirement four Infrastructure that years 30.1 U.S.P policies. employe 3BGC 1.2Investing, 32.4 crr eated Consistent s ar And 7e 7a .5 rstrategic ee Pev 7 ns 8.0 aluatin with ion 76 F .1 plan our un g dthe Investing mission, that 71 b .6 alance no 71.2 longer weof 71.8 do plans included not they 23.3 w as ish44.8 to Establishing and plans should means for be PBGC given financial the ability accoun to fund tability aggressively when financially able $50,000andover 7.6 8.3 92 77.1 73.3 80.1 73.1 74.0 75.6 6.9 13.3 approximately 53 percent of the historic average of $75 billion. PBGC is a stronger agency today Funding Ratios of Single-Employer Defined Benefit Plans, 1977-1987 r-- m ,_ oo oo _.__. =_ Source: Employee Benefit Research Institute, Quarterly Pension Investment Report, second quarter were to close down immediately the PBGC would recover assets sufficient to sp plans for ons fuo tu in r. Recently re crebe asnefit ed , by proposals payments $52 billi ,on. have it makes A be ctu enarpu no ialt attemp d fo efici rwaen rtd ci toes toinclude use of feder pension futu al r reeti fu revenue r neds men as t a annuit receipts y that lobby to a Social goal do Security so. oTh the P rBGC a F ed growth or v poc ri Old-Age example has vate ate made and spens pec , ifi forma should isignificant o cn po sys ti lic on tsponso y emof solutions. p is t rrhe og s stro ress defined continue ng. in The the benefit nu todevelopment mbe be res system. r tr of ictpe edns The of iin on accoun funding futu plar n es ting hon as a than at any time in its history, both financially and in its legal authority. Gender 1992 (Washington, DC: Employee Benefit Research Institute, 1992); Board of Governors of the Federal and Survivors Insurance by _3 o Men 62.1 62.1 62.3 56.1 57.2 57.1 44.6 46.9 48.8 29.1 56.1 Year Funding Ratio make the resulting benefit payments for a significant period of time before 8_ grown progr po will ten o be tia al ms The significantly available so c,_ v onsist urce iews,-- for to of expressed at _ inf since $864 least rastr b the ucture i_ pa llion in enactment rtially _ my ininvestment th oral cover e Civil and of _. these ER Servi written _. /capital, SA. _._ liabilities. ceFRe remarks rom but tiremen 19 only Acco 75are tto o ra ding nnd 1988 my a volunta D own ,ito sa the bili PBGC, and total ry ty Fund current and and tax stability deductible forIn ecof as 197 ting PBGC 5, b the as systems is r is e dependent for we-- rexpected e necessa 103,000 ry onfutu d defined efine rresou e d benefit rces benefit benefit should incr plans plans eases be ;w being allocated ith for 33 investment the mill reto ion to allow pay gross losses Reserve System, Flow of Funds Accounts: Assets and Liabilities Outstanding First Quarter 1992 Benefit Paymentsc 62.1 60.3 56.9 50.4 48.1 48.3 48.7 48.5 48.8 Women 56.9 57.2 57.5 52.1 53.3 54.0 38.5 38.6 39.7 228 43.9 While the overall defined benefit system is financially strong, policies can be enacted to further (Washington, DC: Board of Governors of the Federal Reserve System, June 1992). = unfunded liabilities would have to be covered. 8The underfunding tends to be shou number basis $ premium 702 ld b with illnot ion ofreceip investmen tax-qualified be in attributed th tse M total tsilita $ that r employer-sponso 7y 90 toRe allow the million tiremen Pension plan 1977 pe t rSy sponsors year, rBenefit ed stempla while that to n Gu s f meet 85.0% ( ar uture interest both anty thei defined taxp Corporation r anfiducia ay d ers dividend benefi rwill y t h or and a rve eceipts to pay. pa fu premiums. when r rther ticipants realized, development. Pan olicymake drathe $186 r r bi than s, This lliolike n ove will inryou assets. allow many Dallas rselves the fu L. In ,tuSalisbury GAO 1988 re should years , the to decide r p ; e ro ovide rwfor ereea anticipated 146 an rly opinion ,000 what plans the shutdown on , P dBGC own from Source:EmployeeBenefitResearchInstitutetabulations ofthe March1990,March1991,andMarch1992CurrentPopulation Survey. strengthen the system where needed and enhance the well being of the defined benefit system Source: Employee Benefit Research Institutetabulations based on U.S. Department of Commerce, Bureau r',- 0 04 0o ',.o o 1978 c:: "6 84.2 President aEmployees reportingthattheiremployee hada pensionplanora retirement planforany ofitsemployees atany jobthey heldin1989, concentra of ted Economic in aAnalysis, few industries Survey of Current such as Business, the stee January l, automobi 1992(Washington, le, airline DC: , and U.S. tire the res cur and po rently its Employee nsibilities pa W rt hen ici app pan rcons oximate tsBenefit and and ider to be ineficia ng create $305 Research an riy million es. aret taxable Recommendations iInstitute. rement perinyear fr in astruc come (PBGC ture and po,lpo icy secu 1991). licyprropos issues ity, backed al that , its should poten by be atial effect on defined the be statements philosophy nefi peak ts? cont o The f and 17 will ribu funding 5,000 fo ti be on r more plans onplans plan goal accurate inincluded) should type 1982aan n assessment d be d then inc 198 a sufficient r3 eased b . Since ring offas r fu om 198 cushion tur many 3 e311 , the exposu ,000 policies above numbe tro e 7projected r 30,000 of asof P possible BGC. gro and ssbenefit gross in 1990,and1991. 1979 91.0 Government Printing Office, 1992); The National Income and Products Accounts of the United considered include: Employee Benefit Research Institute industries. bEmployees reporting that theyparl_patedin a pensionplanora retiremenp t lanat anyjobtheyheldin 1989,1990,and 1991. 1980 107.0 .,- P fede BGC _ ral shou Table States: government ldStatisti 8bcompares e cca onsidered. l guarantee Supplement PBGC's For ,, 1959 for cu ex -r qualified 1988 a rent mpl , e Vol. reported , l2 eg N£ reti (Washington, islati rement on exposure , liDC: plans ke tU he level .S.and Government Omn wi individual ib thusavailable Printing Reconcilfigures iation pa pa line. r rti ticipants cipa If ittion doeshas (ac nor ti t ema ve favo wo ine r rd defined kers in,the sepa benefit 40 ram ted illion--41 plans vested, itm should su illrivivo on r rseek an s, ge. an fu dIn nr da e1988 tir mees) ental , assets in changes such totaled U liab pgrad ilitying toSta actus comm of PBGC odate Executive fluctuatio Director ns in future interest rates, investment returns, • Enhanced PBGCbankruptcy protection CRefers tolongestjobheldduringtheyear. 1981 106.9 i- Office, 1992); and U.S. Department of Health and Human Services, Social Security Administration, Introduction dEmployees reporting thattheyusually workedfewerthan35 hoursperweek atthisjob. • Changing PBGC accounting methods from cash to accrual A ofct past of 198 expo 7,sure which (all lim adj ite us dted theto abil 1991 ity o co f ns wtant ell-funded dollars). plaThe ns to 1991 recei exposure ve furtheof r dedu $40 billion ctible pla $912 retirement PBGC nsbi rose to llioavoid n. faccoun rom Ovmajo e 45 r ts.tmillion he r In p same raddi oble to ms titime on 78 , million in pe the th 1982 ri eo imposition d fu ,ove tu the re. r num the of same be115.4 r anof excise pe drefine iod.tax d The contr onasse pension ibts utio in n these plans and unexpected Th 1991 e po Annual sition developments. Report of P ofBGC the Board Executive of Trustees Directo of the Federal r might Oldbenefit -Age and Su from rvivors being Insurance made and NEmployees report_ thattheyusually worked35 ormorehoursperweekat thisjob. • Need to decide whether or not to reinforce the continuation and growth of defined benefit Disability Insurance Trust Funds (Baltimore, 1983 MD: Social Security 124.7 Administration, 1991). ote:Numbersandpercentages maynotaddtototalsdueto rounding. PBGC Activity Washington, D.C. c is ontri lower buti than ons, at seany rved time to re bed tween uce the 19"P 78BGC ($145 safet billion) y net." anIn d 1986 addition ($61 , billion), the Revenue except Act foof r i plans tr ncrease ust fund grew Th In d e addition, fro as E to sets mpl m$2.9 208 oy as ee tr ,the 000 a illion funding Re law to tirement 5 at 84 could year ,000. or deficit e In also n T cd o he m be 1991 enumbe redu changed Secu (table ction r rityof1). to strategy A gr coss t give of pa 197 at r has ticipants least 4 (be ERI en asSA) much raised inc was rease in a d from 0 subject Acknowledgment r,.. to p Lr_esidential _that new _ ap defined po_intment Ibenefit s_ and plans .Se " nate will • 0 not confi bermation fully funded and be made the alncludes only employment-based retirement benefits. plans 1984 128.8 blncludes civilian and military employees. _'_ '_ ("4 '--::3 .C: PBGC insures benefits in the event of underfunded terminations. After an 1985 136.3 12 • R m eq il ui lio ring n tinte o 3r7 agency millioim n pa in ct1986 assessments , and remained at that level in 1988. Moreover, the va 19 1984 r78 ious , ($3 whi qua 2ch billion) rte crre s.ated Any and 401(k) 1985 suchp ($4 po lans licies 0 billion). andshould allowed In be fact ta s,cr xcu utinized dedu rrentctibl exposure e in emp terms lois yof ee approximately their contributions53to landmark incentive Private to piece defined pensions of legisla benefit are tion.an plan impo Among as rdefined tant its source majo cont r ri p of bution rovisions retirement plan was income sponso the crea rship. and tionare of head ofAs the pens agency ion refo (presently rm is pursued it is thethe Secr na eta tur ry e of of Labo a defined r); placing benefitthe plan position must at be ,- _ Clncludes payments to retired workers and their wives,g husbands, -o-_ _ and children. 1986 132.4 • Need to allow and require advance funding underfunded I_ 0 termina 0 otion, P 01 BGC _ becomes the plan ¢11 trustee. This means that am pro ul percent tio mate funt it-sho of aimpact r fithe assets ng histo and on inrsto ic the such cave k- funding b plans ronus age of increased de status $fi 7ned 5 billion. ofcthe on frotr m defined ib Pu $ BGC 74 tion biis ll benefit pila on a ns stronger tobut $ system 592 not agency bitllion o and defined bet thus today ween benefit than at _.ex the Previously pe _P cted ension toco gr Be ns ow. nefit idered Acco Guaranty pro rding posals Corporation to the that Advisory requi 8._ (rP eBGC Council large ) to employe str on engthen So rs cialto Secu reti have rement rity, a basic the understood. that of an AssWhen istant plans Secretary. are first Given established 1987 the importance and when 128.6 of the benefit program increases this would are • Acknowledgment that new defined be2 nefit Febplans ruary will 1993 not be fully funded • No taxpayer guaranty for PBGC P 197 p their any BGC lans 5time an ,impa m takes dain 1988 y ct we iove ts on ll (U histo rpotential h .S. plan av re Depa y,ind reco bor ith P r tment rBGC ec dsfinancially ,tlydete ha liabilities. ofrmed rLa mines bor and P ).BGC. If be in defined nefit its Th legal eligibility e Nat ben authority. iefit onalpension and Energ amoun y plans Effi ts,cien are and cy Act, secu per defined assure centage rity candidate be bynefit gua of elde ranteeing plan srcr lyutiny ofamilies r money --basic particu receiving benefits purchase larly fo income rdefined ega r employer rding frcont om hisri sponso employe bution or her red philosophy r-sponso plan defined before red ofpensions the provided for (such as those merited by increases in the cost of living or a new Source: r_ U.S. Department of Labor, Pension and Welfare Benefits Administration, Trends in • Enhancing information collection then pays the benefits. Table 6 presents historical information on the amount of taxed, which wa it should s ,_ signebe d ito nto ,_bela nefit w last PBGC, _ Octob and er, incl thus _-'_ udes , ,_ benefit a prov security. ision that directs the United is be establishing nefit expectpe ed nsion to ain va plan cr riable ease pafrom r contribution ticipan thts e.current Since defined t 40 hepercent enactment contribu to tion 76 ofpercent ERISA plan could ,by employe 2018. be r collective agency and Pensions bathe rgaining pe , John nsion A. agreemen0 Turner system and --byplans Daniel theJ. can Senate Belier, be expected eds confi . (Washington, rmation to have process. DC: some U.SIt level . Department is of • Establishing means for PBGC financial accountability of Labor, 1989). • Upgrading Status of PBGC Executive Director be Funding M Issues nefi inetsW and ork paid Status e Policy rs and pens ofthe Proposals the ion num Def fund ber ined to Regard ofre Benefit pa alrti locat in cipan g eS the y ts $s2 tem 10 Defined receiving millionBenefit tthese o paybenefits re System tiree, med in and addition ical PBGC benefits sreconsidered. ponsored In 1990, pensRequired ion private plans pe contribu ns have •ion ,_ assumed ben tions efitsmight of an$141.2 increasingly beo made billion to accounted impo defined rtantbenefit r fo ole r 31 in plans percent of im unfunded portant to liability. note that ERISA originally created both the DOL and PBGC top jobs • Clarifying intended use of Pensions--retirement or savings? Conclusion to and thehas num While thbe e r potenti the of plans overall al to trc usteed defined reate siand gni benefit fica pending ntsystem newtrusteeship. liab is ifinancially lities for emplo strong, yers policies who hca adn providing tbe he fo$45 re P 7 aB .3 sGC' po billion re nsor tir s ement abil in makes ity total income to con m retirement eet tributio secu its futu rns itybenefit .reto ERISA ob ali defined ga paymen ti in ons gene con depen tsr.al, tribu By ds an ti compa d on up the on plan r p ison, t rh ovisions eifhboth ealt private h ao rf e the No at the taxpayer adminis guar tran ator ty for level PBGC without Senate confirmation. The DOL position was • Deteriorating plan funding by troubled sponsors _ _ o_ • Caution in the use of Pension fund assets for infrastructure investment or other purposes. be previous enacteld y e to mp furt loy hee rd sm tren ing eth workers. en the sys Thte ismpol and icy th ha es securit a dire yct i omp f partic act on ipant the s aand ffected r pens en selated po tinso re ion rprivate ed. There to benefi PBGC Moreove adefined ts re in totaled cur pa rr,ently rtbenefit iwhen cu $lar, 7.4 sufficient billion asystem. have defined be in liquid en P 19 benefit BGC 7 amended 0.assets Combined repor plan within ts many isthat terwith minated the times in the aggregate benefi since aggregate that ts 19 paid isdefined 74 defined iby n the benefit changed PBGC and the should PBGC continue positionto might be fully benefit financed as well by afrom combina change. tion of premium eON -g be e beneficiaries mployers nefit plans and have where thei $1.3 rneeded ability trillion to as fund iwell n assets as their enhance toown back pe the $900 nsiwell on billion pbeing lans,inaof benefit ndPBGC coulliabili d in therefore the ties. federal an system underfunded effortcivilian itself to bette to and and cover r achieve itmilitary pas the sesexisting the liabili retirement Act's typocke oto rigin Pts system BGC, al ofpurposes. unde itand might rfustate nding be and made within local illegal government individual for a plans. As Clarify paymen ing ts intended and payments use of pensions---retirement to PBGC by termina orti saving ng plans. s? The full faith and credit When considering any pension related policy proposal, such as proposals to place an excise tax 2Thro The uviews ghout expressed this discussi in othis n termination statement are basis solely refers those to of basthe ing author fundingand ratios should on benefits not be attributed accrued and to the assets on Pension trust fund assets or to use pension funds for infrastructure investment, the potential accumulat u process. Employee ltimat ed In ely cr The Benefit at easing h the afollowing rm end Research PBGC. of atten theInstitute, ti plan on section Fin yea has ally r-- itsthe ,discusses, officers, be proposals en assumptions focused trustees, into brief, p sponsors, lon p anl saP c would BGC erecommendations an or use other ex and ci tose staff. calculate itstax financial The on Employee liabilities pens thation have for Benefit trust fund employee shown follow-on in table re defined tirement 2, Pcon BGC syste tribution 's current ms, employer plan exposure to be payments 3 established 3represents _ fJ of $234.3 for a significant some billion number improvement accounted of years. for for the of the government Prior to the passage does notof currently ERISA in suppo 1974rtthe PBGC law made and should a distinction not be be added tweento standard terminations. Termination basis funding does not refer to PBGC's calculation of liabilities for Suite 600 1Cash effects Research balance onInstitute defin plans edisbenefit aanonprofit, re legally plannonpartisan, defined funding,benefit bepublic nefitplans secu policy ribut tyr,esearch and combine the organization. Pfeatu BGC res should of both be conside defined red be.nefit 2121 K Street, NW condi agency PBGC tion ;has it in cu been rrently the past harmed stan few ds financially yea atrs. 53 percent Legisla when tive ofemploye the and average administra rs have oveti rchosen on 1978-1986. proposals to contribute Therefore, to "pension plans" (those that provided an annuity upon retirement) and "capital underfunded terminations, which use termination mortality and retirement age assumptions. and defined contribution plans. Washington, DC 20037-1896 4 3 2 11 5 10 8 7 6 202-659-0670 Fax 202-775-6312