Official Warns of Potential Crisis in U.S. Pension Funds

More than $1.6 trillion in pension funds is potentially at risk because of poor regulations and inept enforcement of federal laws, the Labor Department’s inspector general said Friday in warning of a possible “nightmare” dwarfing the savings and loan crisis.

“In this vital, asset-rich area, the risk of ignoring the potential consequences of inadequate enforcement is monumental,” J. Brian Hyland said in urging Congress to immediately investigate potential abuses and shortfalls of federal pension laws.

“These are savings American workers have set aside for their future,” Hyland said in a report to Congress. “These workers trust that the government will protect these funds by holding the managers and trustees of their pension funds accountable. They deserve no less.”

The report came under attack from a group involved in pension policy and from the Labor Department itself, which criticized Hyland’s comparison of pension funding and the S&L; crisis and said a number of initiatives designed to improve enforcement of pension laws were under way.

“Secretary (Elizabeth Hanford) Dole is committed, with the full agreement and cooperation of Inspector General Hyland, to a fundamental and comprehensive review of our law enforcement efforts,” the department said in a statement.

Also, a spokeswoman for the federal agency that insures private pension funds said Hyland appeared to be overstating the government’s--and taxpayer’s--potential liability in the event of a major pension funding crisis, the likelihood of which she said was “remoter than remote.”

Enforcement Termed Lax

But Hyland, while not alleging any specific abuses, said existing laws and regulations allow employers and pension fund managers to hide abuses from the government and understaffing at the Labor Department leaves the government little chance to catch offenders.

Indeed, Hyland said, the department does not even have a system to detect when reports that pension funds are required to file are delinquent. And permissive regulations allow fund administrators and their accountants to omit from reports information that could alert the government to fraud, abuse and mismanagement, said the inspector general.

“The intent of Congress to assure adequate enforcement in large part through sound, meaningful reporting and disclosure has not been achieved,” the report said. “Legislative reconsideration is needed.”

Hyland said his and other reviews of enforcement of the 1974 Employee Retirement Income Security Act have found “a striking number of parallels” to the current savings and loan crisis, particularly in the failure of managers and private accountants to pinpoint and report significant management and operations problems.

“As, unfortunately, has been demonstrated by the recent savings and loan crisis, government regulation of an industry does not ensure that invested assets are protected,” he said.

In its statement, the Labor Department attacked that characterization.

“The analogy between the S&L; crisis and ERISA is a faulty one,” the department said. “On the one hand, over recent years S&Ls; were largely deregulated while pension rules have become more stringent.”

“I think he is very dramatically overstating any problems,” said Dallas L. Salisbury, president of the Employee Benefit Research Institute, a Washington organization that tracks benefits policy. “As a result of ERISA, the funded status of the private pension system has improved dramatically in each of the last 15 years.”

Hyland said the $100 billion the Congressional Budget Office estimates that it will cost American taxpayers to rescue savings and loans would appear a bargain should a similar crisis wrack a significant number of the nation’s 870,350 private pension funds. The funds total $1.6 trillion in assets--$7,000 for every man, woman and child in the United States.

“The burden of insuring and protecting failed benefit plans will fall upon all taxpayers, not just plan beneficiaries and parties, since the Pension Benefit Guarantee Corp. is the final insurer of these plan assets. Unless steps are taken now, today’s S&L; bailout may become tomorrow’s ERISA nightmare.”

PBGC spokeswoman Jane Hoden said the agency believed that the protections of ERISA, while not abuse-free, were strong enough to prevent a crisis in the private pension system rivaling the S&L; crisis.

In the unlikely event of a total or near-total collapse of the private pension system, PBGC would be liable for its assets plus its line of credit with the federal Treasury, now $100 million, Hoden said.