Pension Fund Protection Measure Offered : Labor Dept. Proposal Requires Employers to Shore Up Weak Plans
Worried about the threat of failing corporate pension plans, the Labor Department proposed tougher laws Thursday to keep retirement funds financially sound.
Under the Administration plan, companies running several businesses could be required to transfer money from a healthy pension fund to help a troubled one.
The Administration also wants Congress to make it harder for corporations to tap the surplus cash in pension funds containing assets swelled by the soaring stock market. But the diversion of cash would be permitted tax-free if it were used to pay for health benefits for retired workers.
The plan submitted to Congress “will make the private pension system more stable, credible and secure,” Labor Secretary William E. Brock III said. “It will continue to allow employers the flexibility to control the extent of their pension promise, while making them more responsible and accountable for the promises they make.” The federal government, which insures the private pensions of 38 million workers, made its biggest rescue effort last month, taking control of the pension plans of 60,000 workers retired from the bankrupt LTV Corp., the country’s second-biggest steel maker.
The takeover threatens the financial solvency of the federal Pension Benefit Guaranty Corp., which needs more money to assure that it can pay pensions ranging up to $1,857 a month. The proposed legislation is aimed at assuring that companies make sufficient annual contributions to avoid the necessity of a federal takeover.
“This is going to be a proposal that will bite companies that are troubled,” Dennis Kass, an assistant labor secretary told a news conference. “But it will shore up the foundations of the private pension system.”
In addition to imposing strict new standards for contributions, the Reagan plan would require a firm’s strong pension plans to help out its weak ones. Under current law, one corporation took a $50-million surplus from one of its funds, while allowing another fund to collapse with the government forced to assume $25 million in obligations.
The taxpayers, through the pension guarantee agency, “should not have to bail out troubled companies with underfunded plans,” said Roger Mentz, assistant secretary of the treasury. Many of the most threatening pension problems are in the steel industry and other manufacturing enterprises with weakening sales and an aging work force. The amount of underfunding throughout U.S. industry--the shortage of money needed to pay the pensions promised to workers--is estimated at $40 billion to $50 billion.
At the same time, numerous firms have healthy pension plans, sometimes with assets greatly exceeding pension obligations. There is an estimated $218 billion in surplus funds.
Some firms have been withdrawing the surplus, shutting down their plans and offering new pensions, sometimes with less generous benefits. The Administration plan would require a cushion of 25% in the fund above the basic pension obligation before a company could make any withdrawals.
Money removed from a fund is subject to regular taxes plus a special 10% tax. But the Administration would eliminate this tax if the money is put into a fund to pay medical benefits for retirees. As with pensions, medical benefits have been jeopardized in ailing industries. Kaiser Steel recently canceled medical insurance coverage for 4,000 retirees in California.
Reaction to the Administration plan was cautious from business representatives and members of Congress.
“Most employers support the concept of withdrawals and would like the idea of being able to use excess pensions to fund for retiree health benefits,” said Vicky Caldeira, associate director of employee benefits for the National Assn. of Manufacturers. “But they are opposed to restrictions on terminations. Our concern is that the rhetoric is positive, but the bill itself won’t achieve the ambitious goals they are talking about,” she said.
Sen. Howard Metzenbaum (D-Ohio) said: “I hope it is not too little too late.
“In the past six years, $11 billion has been removed from healthy pension plans while billions of dollars of pension promises have been broken because of poorly funded plans. The interests of workers and retirees have been ignored too long.” Metzenbaum is chairman of the Senate Labor and Human Resources subcommittee that handles pension issues.
