Shortage in Private Pension Plans Growing, Study Finds : Retirement: Gap between assets, liabilities hit $53 billion in ‘92, nearly 40% higher than ’91. Officials say problem should be dealt with now.
Private sector pension plans covering 32 million Americans in 1992 fell $53 billion short of the amounts needed to pay future benefits, a federal oversight agency said in a report released Thursday.
The combined “unfunded liability” is nearly 40% higher than the 1991 figure of $38 billion, the Pension Benefit Guaranty Corp. reported, and exceeds by a considerable margin projections made late last year. The underfunded pension plans had assets of $182 billion and liabilities of $235 billion in 1992.
Although the projected gap has climbed steadily for 10 years, PBGC officials emphasized that the new figures did not represent an immediate problem for beneficiaries of the affected plans. Should the trend worsen, however, it clearly could pose problems for future beneficiaries, they indicated.
“PBGC has ample assets to pay benefits for many years to come,” Executive Director Martin Slate said. “But the data send a clear signal that we have a growing problem which we should squarely address while it is still manageable.”
The PBGC blamed the problem on lower interest rates, which have reduced the return on investment of the funds.
The PBGC found that underfunding in the 65,000 single-employer plans that it insures was heavily concentrated in a small number of companies in the steel, auto, tire and airline industries. About 72%, or $38 billion, of the underfunding was concentrated in plans sponsored by 50 companies, primarily in those four industries.
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The PBGC noted that three-quarters of the underfunding was in plans maintained by “financially healthy” firms and, therefore, did not pose a risk to participants. But it found that the remaining plans, which cover about 1.2 million participants, were under the sponsorship of companies with “below investment grade ratings.” They accounted for about $14 billion in underfunding.
The PBGC said that the 1992 increase in underfunding was due largely to the decline in interest rates, but it also attributed some to weaknesses in current laws.
Figures for 1992 were not released until now because the companies have nine months after the end of the year in which to file their information, and the PBGC takes more time to prepare the data.
The release of the figures, which are derived from Standard & Poor’s Compustat database as of Dec. 31, 1992, have come at a time when the Clinton Administration is undertaking major efforts to improve pension funding.
The Administration’s pension reform efforts were introduced in Congress last year as the Retirement Protection Act. Administration officials trumpeted the figures, saying they highlighted the need for the proposed reforms.
“The latest figures underline the need to move forward with these reforms,” said Labor Secretary Robert B. Reich, who also is chairman of the PBGC board of directors.
But the PBGC report also drew fire from critics, who charged that the figures were misleading and the tactics counterproductive. Labeling the report a form of “crying wolf,” they said that it was designed to draw the attention of Congress and the public to what essentially is a non-issue.
“The PBGC would like to have a law passed so they have to go around telling people there’s a crisis,” said Paul Jackson, a retired consulting actuary in Washington whose clients included General Motors, IBM, Penn Central and AT&T.; “This is just one more example of the government inventing a problem and then solving it, when it’s something that’s easy to do.”
He called the $53-billion figure “meaningless” unless all the companies whose pension plans have unfunded liabilities went out of business and bankrupt at the same time, he said.
He said the chief culprit behind the unfunded pension liabilities was not the companies themselves but inflation.
However, defenders of the PBGC’s methods say they support its efforts to draw attention to the problem.
“I think it’s a legitimate tactic,” said Robert Nagle, executive director of the PBGC from 1979 to 1982. “There’s never going to be any legislation passed unless they create some perception of the need for it.”
The PBGC, which is financed by contributions from business, was established by Congress in 1974 to guarantee payment of American workers’ and retirees’ basic earned benefits. It insures 32 million participants in single-employer plans, and an additional 9 million workers in multi-employer programs, and guarantees benefits of up to $2,556.82 a month for participants in failed pension plans.
The Growing Pension Gap
Pension plan underfunding--the gap between assets and liabilities--swelled to an estimated $53 billion in 1992. The total underfunding in government-insured, single-employer pension plans from 1983 to 1992:
In billions 1992*: $53 1991: 38 1990: 33 1989: 27 1988: 25 1987: 22 1986: 21 1985: 15 1984: 11 1983: 10 * 1992 is the latest year for which figures are available
Source: Pension Benefit Guaranty Corp.
