Retirement Security:

Legislative Changes Needed To Financially Strengthen Single Employer Pension Plan Insurance Program

HRD-84-5: Published: Nov 14, 1983. Publicly Released: Nov 14, 1983.

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In connection with the Pension Benefit Guaranty Corporation's (PBGC) self-financing insurance program to protect the benefits of private pension plan participants, GAO examined information on pension plans which were terminated as of September 30, 1981.

Since its inception, the PBGC insurance program has been operating at an increasing deficit. The deficit has risen because net claims for benefits owed by terminating plans accumulated in greater amounts than could be financed by premiums. The liquidity of the insurance program has not been jeopardized thus far; however, if the premium rate is not raised the program's ability to pay guaranteed benefits in the long term could be threatened. GAO believes that a proposed premium rate increase is reasonable and necessary to reduce the deficit.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Follow-up on this recommendation should be discontinued. The Single Employer Pension Plan Amendments Act of 1986 was enacted, and this recommendation was not included. The act did, however, increase the single-employer annual premium rate from $2.60 to $8.50. GAO follow-up on the recommendations to Congress should be considered satisfied since it has not acted on them in over 22 months.

    Matter: Congress may wish to amend the Employee Retirement Income Security Act (ERISA) to provide for more timely adjustment of premium rates for the single employer pension plan insurance program by: (1) requiring the Executive Director, PBGC, to provide information in its annual report to Congress on the adequacy of the existing premium rate and recommend changes to the premium rate when warranted; and (2) provide an automatic annual adjustment to the premium rate using the PBGC May 1982 premium rate methodology.

  2. Status: Closed - Not Implemented

    Comments: Follow-up on this recommendation should be discontinued. The Single Employer Pension Plan Amendments Act of 1986 was in enacted, and this recommendation was not included. The act did, however, increase the single-employer annual premium rate from $2.60 to $8.50. GAO follow-up on the recommendations should be considered satisfied since it has not acted on them in over 22 months.

    Matter: Congress may wish to consider minimizing premium increases needed to fund the insurance program's increasing deficit by amending ERISA to: (1) reduce the period over which sponsors of pension plans can amortize unfunded actuarial liabilities; and (2) extend the 5-year phase-in period for providing full insurance coverage of past service benefits and eliminate coverage during the phase-in period.

  3. Status: Closed - Implemented

    Comments: The Single Employer Pension Plan Amendments Act of 1986 was enacted. The act included the following reforms: (1) increasing sponsoring employer's liability above existing minimum standards; (2) holding prior contributing employers liable for plans' unfunded benefits; and (3) certain conditions be required before employers' requests for waivers of federal funding requirements are approved.

    Matter: Congress could amend ERISA to make all unpaid waiver amounts due upon plan termination and to either exclude coverage of benefits accrued during the plan year for which the waiver was granted or authorize PBGC to place conditions on minimum funding waivers granted by the Internal Revenue Service (IRS). Congress could also amend ERISA to authorize PBGC to place conditions on benefit increases granted by IRS.

  4. Status: Closed - Implemented

    Comments: The Single Employer Pension Plan Amendments Act of 1986 was enacted. The act included the following reforms: (1) increasing sponsoring employer's liability above existing minimum standards; (2) holding prior contributing employers liable for plans' unfunded benefits; and (3) certain conditions be required before employers' requests for waivers of federal funding requirements are approved.

    Matter: Congress should amend ERISA to provide that sponsors that remain in business and terminate pension plans continue to be liable for payment of the plans' asset insufficiencies. In addition, Congress should authorize PBGC to: (1) claim, as an unsecured creditor in lieu of a claim limited to a portion of the sponsor's net worth, the full amount of plan asset insufficiency from sponsors discontinuing businesses that terminate pension plans; and (2) hold, for a limited time, all prior contributing sponsors secondarily liable for plan asset insufficiencies they create when the plan terminates within a specified time after its transfer to a new sponsor.

 

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