Putting a Ban on Corporate Raids of Pension Funds

Congress should start off the new year right by outlawing “reversions”--the polite word for corporate raids on workers’ pension funds.

One form of reversion occurs when an employer terminates a pension plan and siphons off what is euphemistically called “surplus” money--the amount left after the company buys annuities that will give retired workers only minimal benefits.

The “surplus” pension money the employer grabs is used for anything from hostile takeovers to leveraged buyouts, but almost never to improve workers’ pensions.

When you think of $2.7 trillion in all private pension fund assets, the amount that employers have taken so far by reversions may not seem significant. But it certainly is significant for the workers involved, because we are, as they say, talking big bucks.

Since 1983, according to the government, about 2,000 pension plans have been terminated, and corporations have scooped up $20 billion that had been set aside for the retirements of more than 2 million workers.

Actually, much more money and more workers are involved because the government doesn’t include reversions that do not give employers at least $1 million.

If the funds had been handled fairly, that reversion money would either have gone to workers immediately or have been left to continue accumulating and then used to increase pensions for both newly retired workers and those already in retirement.

The logic for using the money for the workers is simple: The employers’ initial contributions to workers’ pensions and the money they earn from investing those funds are all, in fact, workers’ deferred wages and should not be diverted by employers for any other purpose.

Employers use money that might have gone into pay increases for workers’ pensions, and that is why it is called deferred wages. When employers do so, they receive significant tax advantages.

Investment returns have been so great in recent years that an estimated 80% of all pension funds now have more money than is needed to provide very modest pensions, and the so-called surplus is enormous--an estimated $600 billion at last count.

Well aware of that pile of money set aside for workers, employers are increasing the number of reversion rip-offs. But several proposals are under consideration by Congress to help make sure that workers get all of their retirement money.

One idea is to impose an outright ban on reversions--just tell employers that they cannot siphon off the “surplus” money from pension funds.

The danger in an outright ban is that some employers might try to get around it by stopping their contributions to the funds until there is no longer any reserve, or surplus. That way, they would keep it for themselves.

But there is general agreement that a healthy reserve is essential to guarantee pensions in case of a recession and to pay for added pension costs as the number of older workers increases--as it is doing.

If the surplus is too tempting to employers, Congress might work out something to help them resist reversion by requiring use of at least part of the money to help retirees pay medical costs only partly paid by Medicare.

Sen. Howard M. Metzenbaum (D-Ohio), who had favored a ban, is now reluctantly proposing a compromise just to get something through Congress.

He says companies that want to milk their existing pension funds should be required to at least provide enough money for both current and projected obligations to workers and also give retirees one cost-of-living adjustment.

Since inflation is almost always with us, a one-time adjustment is obviously inadequate. Private pensions should be tied to increases in the cost of living, just as Social Security is.

A more interesting and more fundamental proposal comes from Rep. Peter J. Visclosky (D-Ind.), who wants a law that would give worker representatives an equal share of seats on boards that control corporate pension funds.

That would, among other things, give workers a fighting chance to stop company managers from terminating the funds for the companies’ benefit alone and press instead for using them to help retirees.

And retirees need all the help they can get, despite some impressively good news about the status of the nation’s elderly.

The good news is that people over 64 are on the average better off financially than they have ever been before in the history of the United States.

That isn’t saying much, however. There are millions of poor older people who know that averages are tricky, a fact that President Franklin D. Roosevelt liked to explain with his story about the guy who drowned while crossing a stream that was only two feet deep--on the average.

Also, the average per-capita money income of people over 64 was only $12,074 in 1986, the latest year for which data was available in a study by the Employee Benefit Research Institute. That annual income doesn’t make the elderly rich, folks.

Still, the figure is impressive because, with a 30% increase in the purchasing power of their income since 1970, the elderly are as well off financially as those under 65, according to the institute.

The reasons for that relatively good financial status for the elderly is clear: Most own mortgage-free homes, they no longer support their families and they have some kind of private pension plan to supplement their Social Security checks.

That increasing dependence on private pensions makes it all the more urgent for Congress to act soon to prevent employers from draining the pension funds and leaving workers with a bare minimum income for their retirement years.