8 Million Workers at Risk of Lost Pensions, Reich Says : Retirement: The labor secretary calls for legislation that would require employers to fund their plans fully so benefits would be assured.
At least 8 million workers risk losing all or parts of their pensions because employers are failing to keep up their payments to assure that benefits will be provided, Labor Secretary Robert B. Reich told Congress on Tuesday.
Warning that the federal pension guaranty program could be confronted with the same kind of multibillion-dollar liability that the government faced in the savings and loan crisis, Reich called for legislation to require full funding of pension plans.
“Promises are being broken,” the Cabinet officer told a House Education and Labor subcommittee. “The longer we wait . . . the more people will be hurt.”
Reich said some big companies are exploiting loopholes in the federal pension law to avoid making contributions that would be adequate to finance future pensions for their work forces.
As a result, many workers are being shortchanged or deprived of promised retirement payments and the projected deficit of the government’s Pension Benefit Guaranty Corp. is rising rapidly, Reich noted.
Although most pension plans are well-funded, he said, highly disturbing trends have almost doubled the amount of underfunding from $27 billion in 1987 to $53 billion five years later.
At the same time, the deficit of the Pension Benefit Guaranty Corp., the government-run insurance program that is intended to assure payment of retirement checks, has doubled in the last five years to $2.9 billion.
“Year after year, the gap between pension promises and pension assets has widened,” Reich testified. “This chronic underfunding can undermine our retirement system.”
Martin Slate, executive director of the pension guaranty agency, said the original federal pension law enacted in 1974 contributed to underfunding because it allowed companies to pay for pensions over a period of 30 to 40 years.
“Companies can utilize credits and offsets and set actuarial assumptions so that contributions are minimized,” Slate said. “Fully within the law, many employers have been able to make little or no pension contributions, even though their plans are severely underfunded.”
A total of 1.2 million workers and retirees now receive benefits from financially troubled firms that are not making proper pension payments, Reich said.
The pension problem is concentrated in major industries--steel, auto, rubber and airlines--that once were financially powerful but have become less profitable in recent years.
For example, Sharon Steel Co. closed its manufacturing operations and terminated its five pension plans at a time when they were underfunded by $250 million. Although the federal pension guaranty program will pay full benefits for most of the 7,000 retired Sharon workers, about 1,200 will get only partial pensions because not all of their benefits were covered by the federal guarantee.
For example, a 55-year-old retired worker who had been getting $860 a month now will receive less than $500 a month because of the underfunding, Reich said.
On a related issue, Reich said the Clinton Administration does not favor action now to guarantee the pensions of retired workers who receive annuities from insurance companies. Underfunding of pensions is a more serious problem that should be addressed first, he said, because states that regulate insurance firms also have pension guarantee programs.
The American Assn. of Retired Persons urged Congress to broaden the responsibilities of the federal pension program to include annuities, arguing that failure to do so would leave “a gaping hole” in the federal safety net for pensioners.
“The recent failure of several large insurance companies, particularly Executive Life Insurance Co. of California, has underscored a giant omission in the federal framework protecting defined benefit pensions,” AARP spokesman Dudley Lesser said.
When the state of California took over the failed firm, the retirement benefits of those receiving annuities were slashed by 30%, he said, indicating the inadequacy of state backup funds.
Rep. Pat Williams (D-Mont.), chairman of the subcommittee considering the legislation, indicated that he is prepared to act on the annuity issue as well as the underfunding of pensions.
“We in Congress must take steps to protect the blameless,” he said.
Pension Safeguards
Although most pension plans are well-funded, the amount of underfunding has nearly doubled since 1987. If you suspect mismanagement of your fund:
* Ask your employer for a copy of Form 5500, a report your plan must file periodically with the Labor Department. This will tell you how your pension assets are invested, whether they are adequately diversified and whether the plan is getting a decent return on its investment. But the forms can be technical. If necessary, ask a financial adviser for an interpretation.
* Check with your employee benefits representative if you have questions or concerns about your plan.
* Obtain information on pension rights in general by sending for the Guide to Understanding Your Pension Plan (document D13533), available free from American Assn. of Retired Persons. The address: AARP Fulfillment, 601 E St., N.W., Washington, D.C. 20049.
Source: Times staff, Kiplinger’s Personal Finance Magazine
