Pension Plans:

Possible Effects of Requiring Employers To Make Contributions Sooner

HRD-88-28: Published: Oct 30, 1987. Publicly Released: Dec 1, 1987.

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In response to a congressional request, GAO determined the effects of the administration's proposal to change the timing of employers' contributions to their single-employer pension benefit plans.

GAO found that: (1) 64 percent of the 6,100 employers would have to change their contribution practices to meet the proposed requirements; (2) 50 percent said that the proposal would have a negative effect on their business; (3) the most frequently cited concern was that the proposal would increase administrative costs and require changes in cash management; and (4) 70 percent of the plans were overfunded by 10 percent or more, the level of funding the administration suggested was adequate to provide security for participants and the insurance program in case of plan termination.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: The Pension Protection Act, as part of the Omnibus Budget Reconciliation Act enacted on December 22, 1987, changed existing law to require employers to make contributions required for 1 year in four installments, with the total contribution due 8.5 months after the end of the plan year.

    Matter: In debating legislation that would amend the Employee Retirement Income Security Act to require employers to pay contributions sooner, Congress should consider limiting the requirement to employers sponsoring plans that do not have a sufficient funding level to provide security for participants' benefits and to protect the insurance program from claims.

 

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