In the 20 years since its enactment, ERISA has shown the limits of government intervention.
ERISA's minimum funding standards have ensured sound funding levels of most pension plans. But ERISA and subsequent amendments have not only failed to improve pension coverage, but also have actually hurt it.
The pensions of those covered by single-employer, non-negotiated plans are, indeed, more secure. But those covered by negotiated plans are not because previous legislation has failed to address the peculiar tax-rule disadvantages in the funding of pensions for collectively bargained workers. These disadvantages are a prime reason General Motors Corp.'s non-union plan is $2.8 billion overfunded, while its union plan is $18.9 billion underfunded.
The constant tinkering with pension laws and use of such tinkering to raise revenues have imposed such burdens on employers that many have decided not to have any pension plan, and others have settled for lower cost defined contribution plans.
Coinciding with ERISA's 20th anniversary, one of the most sweeping amendments to ERISA, purported to eliminate worries about unfunded plans and some other problems, is now pending in Congress. Pension plan sponsors will take another hit to the tune of $900 million to offset the revenues lost through the General Agreement on Tariffs and Trade, or GATT. Once again, pension reform has been hijacked by the need for additional government revenues.
The bill would tighten funding requirements of underfunded plans and strengthen PBGC finances. However, the legislation, far from eliminating ERISA's flaws, threatens to further undermine pension security. It would force companies with underfunded plans, companies that are generally cash-strapped already, to pay higher premiums to the PBGC and to make large additional pension contributions by requiring the use of unnecessarily conservative actuarial assumptions. It would grant the PBGC new powers to review and possibly block ordinary business transactions, such as sales of divisions, if they somehow involve underfunded plans.
In short, the measures would financially weaken such companies as GM, Chrysler, Northwest Airlines, Westinghouse - some of whom have formed the Pensions Issues Coalition to lobby against the bill. The bill would threaten jobs and competitiveness and ultimately raise the risk to the PBGC.
Separate, persuasive analyses by David Langer, a New York actuary, and Groom & Nordberg, a Washington law firm working for some sponsors, argue the PBGC uses faulty assumptions to claim its deficit is chronic and swelling and a threat to its financial viability. In fact, their work suggests the PBGC is healthier, its single-employer deficit shrinking.
Instead of adopting the complex, ill-designed, money-grubbing, pseudo-reform proposals, Congress ought to strip ERISA to its essentials, preserving pension security and simple non-discrimination, to reduce its costly administrative burden on sponsors that has discouraged broadening coverage. Ideally, Congress ought to examine pension income policy as a whole, including both Social Security and the private pension system. Social Security faces insolvency by 2029. Yet, Congress seeks no genuine reform. Instead, it this month unanimously passed a bill to make the Social Security administration an independent agency. But for now it's enough for Congress to realize ERISA's limits.