Pension Plan Reviews Protect Participants

As if there weren't enough accounting this time of year, many companies are summoning their employees to check the fiscal status of their pension plans under rights granted them by the Employee Retirement Income Security Act of 1974 (ERISA).

Few people exercise those rights. "I'm basically trusting," says one woman, a lawyer. "We're already overwhelmed," says an engineer. "What the hell is ERISA?" asks a publicist.

Actually, "summon" is too strong for some corporate invitations. A personnel department may suddenly find copies difficult to locate, perhaps because they know from experience that those who demand a viewing get absolutely nothing out of it, and it's a nuisance to offer explanations.

The 1974 act was designed to correct abuses in the nation's half a million (now 900,000) private, non-government pension plans. Before then, management could do "whatever they wanted" with pensions, says Bob Colter, employee benefit plan specialist at the Labor Department.

Some allowed pensions only to executives. In others, participants "wouldn't vest until retirement," says San Diego accountant Paul Monks, "and just before then, they'd be fired." Employers might borrow from pension funds for pet projects or close the business, says Colter, and "just take the money."

The new law protected employees' rights and the funds. It established rules of participation and vesting and set up the governmental Pension Benefit Guaranty Corp. to insure benefits if a business fails. Pension plans became trust accounts, whose funds, says Colter, "can't be commingled with employer assets" and whose trustees have well-defined responsibilities. "The main thing is the funds are for the benefit of participants, and the fiduciaries (trustees) should run the plan for them."

The annual benefit report is basically just "a condensed balance sheet," says Colter, sent to the Internal Revenue Service and Labor Department. It shows current assets, earnings and expenses (including benefits paid).

There may be reports on several benefit plans, usually employer-funded, but sometimes including employee contributions. A "defined-benefit" retirement plan is government-insured, and beneficiaries are guaranteed certain amounts at time of retirement, as specified in the plan. Profit-sharing plans involve individual employee accounts: These funds are variously invested, and the amount ultimately withdrawn depends on the value at that time. Finally, there are reports on employee "welfare benefit" plans--group health, disability and life insurance--noting premiums paid, agent commissions and claims.

If few employees can understand these financial statements, one might ask what they'll get out of perusing them. At best, says Monks, they might note "a significant drop in income or assets." An annual report might not even reveal that, "especially," says a lawyer, "if someone's wintering in Florida on the money."

The more discerning and more effective review is that of the IRS and Labor Department, both concerned whether the plans are funded and administered properly. The result may be an IRS audit or a civil action from the Labor Department, which has filed "hundreds of suits for fiduciary violations," says Colter, "like fiduciaries investing in funds where they had an interest, or paying commissions to friends," or, more recently, using the funds to buy up company stock and keep it from corporate raiders.

Given the official scrutiny, "you can't really mess with pension plans," Monks says. Even where pension plans invite no question, the ERISA reporting and review are probably a useful burden. At the least, a bank lawyer says, "the very fact that the reports have to be prepared puts a certain discipline on the employers."

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