Many Pension Plans Are at Risk, Congress Warned

Corporations have stripped employee pension plans of nearly $16 billion in excess assets since 1980 while making $145 billion in empty promises of retirement income and health care to workers without setting aside money to pay for them, Congress was told Tuesday.

A growing corporate practice of terminating retirement plans--often using surplus assets in takeover wars and sticking the government with unfunded liabilities--is putting at risk millions of Americans who look to defined-benefit pensions to take care of them in their old age, witnesses said.

The Labor Department, in a 1984 study, concluded that workers in terminated plans lose about 45% of benefits they otherwise could anticipate.

The dimensions of the problem and proposed solutions were outlined Tuesday in a daylong joint hearing before the Senate labor and House labor-management relations subcommittees.

While the Reagan Administration was applauded for coming up with a set of proposals intended to make pension promises more secure, business, labor and retirement groups all found fault with various aspects.

Even Labor Secretary William E. Brock III, chief architect of the Administration proposal, was hesitant to say its emphasis on discouraging terminations of both over-funded and underfunded pension plans effectively addresses the issue.

“The problem is awesome, and I don’t know that any of us have the answer,” Brock said.

But he said the “very modest changes” that the Administration wants “will significantly increase the probability that all plan participants will receive their full promised benefits.”

Both Brock and witnesses from business, labor and retirement groups expressed fears that Congress will overreact and discourage companies from establishing pension plans in the first place by imposing too many new restrictions on them.

The last time Congress comprehensively addressed pensions was in 1974 when it passed the Employee Retirement Security Income Act, or ERISA, following well-publicized abuses in the handing of pension funds of Teamsters union members and the employees of several corporations.

That law required that pension fund assets be managed for the sole benefit of the participants in the plans. And it established the federal Pension Benefit Guarantee Corp., or PBGC, to insure those benefits promised to retirees, much like the Federal Deposit Insurance Corp., which insures bank depositors against losses.

While ERISA curbed some past abuses, it may have established two new ones.

Pension plans fat with surplus assets as a result of double-digit interest rates in the late 1970s and early 1980s and then a booming stock market became a target for both corporate raiders and entrenched managements desperately seeking funds to fight them off.

“Companies have turned their pension plans into corporate piggy banks,” complained Sen. Howard Metzenbaum (D-Ohio). “And in the process workers have lost retirement security. The situation cries out for reform.”