Pension Plan Underfunding Shows 1st Drop in 10 Years

Underfunding of single-employer pension plans dropped by 56% in 1994, the first decline in 10 years, due to increased interest earnings and additional contributions.

The federal Pension Benefits Guaranty Corp. said Wednesday that the shortfall between promised benefits and the money set aside to pay for them dropped to $31 billion, from $71 billion in 1993.

“This is good news for workers and retirees who work long and hard for their promised pensions,” said Labor Secretary Robert Reich, who is also chairman of the pension insurance agency.

The agency said the 10,000 underfunded plans, covering an estimated 8 million people, had assets in 1994 of $211 billion and benefit liabilities of $242 billion.

The number of companies with underfunded plans--some of which have more than one plan--declined in 1994 to about 8,000 from 10,000 a year earlier.

“We have begun to chip away at the underfunding core,” said Martin Slate, executive director of the agency.

The agency said the majority of the 58,000 defined-benefit pension plans for U.S. workers and retirees that it insures are fully funded. The plans have assets of $987 billion and liabilities of $853 billion.

And the agency emphasized that much of the underfunding now is in plans sponsored by financially healthy businesses. It is spread across all industries, with about 20% of it in plans sponsored by steel companies.

But the auto industry, which accounted for about a third of the underfunding in 1993, now accounts for less than 5% of the shortfall.

About $10.6 billion of underfunding occurs in plans sponsored by companies with below-investment-grade bond ratings, and the plans cover about 1.2 million people, the pension insurance agency said.