Labor Dept.’s Pension Probe Gets Slow Start

Federal regulators have referred to the Labor Department 340 possible violations of U.S. pension rules during the past year, but so far the department has begun probes in only 38 instances, government officials said Monday.

Officials said the first such referrals--from the federal Pension Benefit Guaranty Corp., which regulates pension fund activities--came early in 1990, about the time that the problems of crippled Executive Life Insurance Co. began receiving scrutiny in Congress. Huge losses at Los Angeles-based Executive Life now threaten pension plans that had been turned into annuities at the company.

David G. Ball, the assistant secretary of labor in charge of enforcing the pension laws, said his division has begun more than three dozen formal inquiries, but has not yet determined if any firms acted improperly in shutting down pension plans and buying annuities instead. Ball declined to say whether companies dealing with Executive Life were under investigation.

“We’re getting to them as fast as we can,” Ball said in an interview. “It’s a lot of work. I don’t think that’s a bad result at this point--we’re giving it priority consistent with the resources we have.”

The division also has not yet issued long-awaited rules detailing the minimum standards that it expects companies to use in choosing an insurance company annuity that they want to take the place of their pension plans.

The issue has taken on a new importance since the seizure by California state authorities earlier this month of Executive Life, which became financially crippled after a plunge in the value of its huge junk bond portfolio.

California Insurance Commissioner John Garamendi has announced that retirees with annuities issued by Executive Life will receive only 70% of their normal pension allotments as the state struggles to conserve the assets of the troubled company.

The reason that so many corporations have shut down their pension funds and replaced them with insurance company annuities is that doing so enables them to use the surpluses that many of these pension funds had built up during the 1980s for other purposes.

Meanwhile, a new survey by the General Accounting Office shows that between 3 million and 4 million retired persons and survivors of retirees lost federal guarantee protection for their pensions after their former employers converted retirement plans into annuities.

The study said the retirement benefits for most of this group remain intact because their annuities are being run by major insurance firms. However, an unknown number are imperiled because their annuities were issued by Executive Life or other troubled firms.

The GAO study offered the first detailed estimate of the size of the population whose pensions no longer are covered by the PBGC, which guarantees pensions up to $2,165 monthly.

Senate Banking Committee Chairman Donald W. Riegle Jr. (D-Mich.), who asked the GAO to conduct the survey, called Monday for changing the current system to require companies to provide workers with advance notice--and obtain their approval--before transferring their pension funds.

If an insurance company fails, a retiree’s ability to continue receiving his annuity depends on guarantee funds established by the individual states. Officials said that protection varies considerably, depending on the state where the person lives.

Many state funds limit guarantees to $1,000 a month, far less than the $2,165 guarantee from the PBGC. California does not have the $1,000 limit, but it limits its payments to 70% of pension allotments, an insurance department official said.

PBGC officials say that beginning in February of last year, the agency made repeated referrals about annuity issues to Ball’s enforcement division.

They say the agency became concerned with the issue because of the collapse of the junk bond market and the publicity concerning Coleman Co., the maker of camping equipment, which canceled plans to buy Executive Life annuities after rating agencies lowered their evaluation of the company.