U.S. targets troubled pension plans Clinton proposes larger premiums for at-risk firms

October 01, 1993|By New York Times News Service

WASHINGTON -- Seeking better protection for the retirement benefits of millions of American workers, the Clinton administration proposed legislation yesterday to strengthen the government's system of pension insurance by requiring companies with insufficient funds in their pension plans to make larger insurance contributions.

"The financial future of many American workers and retirees may be at risk because their pensions are underfunded," Robert B. Reich, labor secretary, said at a briefing to explain the proposal. The plan was developed by a task force he appointed soon after taking office early this year.

The problem is concentrated in the steel, airline, tire and automobile industries, with the General Motors plan showing benefit liabilities exceeding assets by $11.8 billion. Chrysler and LTV Corp. rank second and third on the list of companies with biggest unfunded pension liabilities, at $4 billion and $3 billion, respectively.

Insurance premiums paid to the government would rise sharply for the most poorly funded plans, nearly doubling to $140 a year for each covered employee, and companies would also be forced to make more realistic assumptions about how many years a retiree might live to collect benefits.

In addition to lowering the financial risk workers face, the administration's plan is intended to shore up the government's Pension Benefit Guaranty Corp. and thereby head off the possibility of a taxpayer bailout analogous to that of agencies insuring bank deposits in the 1980s.

Specialists predicted some version of the proposal is likely to be approved by Congress next year. The question, some said, was whether Congress could find the narrow middle ground to ease the underfunding problem without pushing weakly sponsored funds over the edge.

If yesterday's proposals are fully carried out after three years, the premium increases, when fully phased in, will yield the Guaranty Corp. an extra $500 million a year. Thus, in the fifth year, revenue would be $1.4 billion instead of yesterday's $900 million.

Mr. Reich added that while most pensions were safe, underfunding -- as the problem of insufficient assets to cover promised payments to retirees is known -- has jumped 66 percent since the overhaul of pension law in 1987 and now probably exceeds $45 billion. About 8 million people work for companies whose pension plans are to some degree underfunded, government officials said.

Other elements of the package, expected to be submitted to Congress shortly, would give the guaranty corporation greater flexibility in forcing compliance with funding and other rules governing pensions. The agency is currently hampered, officials say, because its chief enforcement weapon -- the threat of terminating a plan -- has such potentially dire consequences for workers that it is of little practical use.

The administration proposal would also require companies with underfunded plans to provide participants each year with a "simplified, understandable" explanation of their plan's status and the limits of the government's guarantee. The maximum the agency pays out is now $29,250 a year. Unlike Bush administration initiatives on the subject, the plan would not scale back insurance coverage.

Reaction to the administration plan was generally favorable among both business and consumer groups, many of which were invited by the task force to express their views. But strong opposition is expected to come from the main targets of the plan, the companies with the biggest funding gaps and their unions.

"Overall, I have to commend the administration for focusing its efforts on plans that are most underfunded and thus pose the greatest risks to the system," commented James Klein, executive director of the Association of Private Pension and Welfare Plans, a corporate group.

Plans meeting funding standards would see no rise in either their insurance premiums or reporting requirements and would be allowed to make their contributions annually rather than quarterly.

But according to the pension agency, 250 companies would find their insurance premiums rising by at least $100,000 a year, with 32 of these paying an additional $1 million a year or more.

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