Proposed Pension Reversion

HEHS-96-54R: Published: Oct 24, 1995. Publicly Released: Oct 24, 1995.

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Pursuant to a congressional request, GAO provided information on pension plan underfunding, focusing on a proposed legislative provision that would allow companies to transfer excess assets out of their defined benefit pension plans for any purpose. GAO noted that: (1) current and termination liabilities are measures of liabilities that a plan has accrued as of its valuation date and each relies on different assumptions and yields very different estimates; (2) plans that are significantly funded over their current liability can lose plan funding rapidly due to bankruptcy, early retirements, or a decline in interest rates; (3) participants can lose benefits when a plan is terminated because the Pension Benefit Guaranty Corporation (PBGC) generally does not insure all benefit amounts; (4) companies may not transfer or obtain excess assets from a defined benefit plan under current law, but some transfers may be permissable if the plans merge and participants' benefits are not reduced; (5) it is unclear whether the transfer of excess plan assets would release capital for investment; and (6) although the proposed provision would allow withdrawal of overfunded assets, plan sponsors may be required to make longer cash contributions in the future.

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