The Oct. 16 commentary by Michael Peskin and Charlene Barnes explained why firms may find it desirable to revert assets from pension plans. The House Ways and Means Committee's tax bill provisions to ease corporate sponsors' ability to revert "surplus assets" may be good corporate profit policy, but it is bad retirement and savings policy. The private pension system of tax preferences and benefit guarantees aims to provide retirement income security for working Americans. The system also has the very important by-product of increasing national savings.
By definition, a reversion of assets leaves fewer assets in the plan for paying benefits. The authors glossed over this point by blithely saying that "participants' accrued benefits are largely protected by the Pension Benefit Guaranty Corp." What they don't acknowledge is that the PBGC's current guarantee limit stands at $31,000 annual benefits for a worker retiring at age 65 and does not cover retirement benefits owed before age 65 when many production workers retire because of poor health.
The modest guarantees do not come free. For plans that terminate without assets sufficient to pay the guaranteed level of benefits, taxpayers make up the difference. The commentary did explain that many employers who take advantage of the ability to revert assets would find themselves in the position of being assessed higher premiums by the PBGC - which is, of course, the current system's acknowledgement of the increased risk to participants in these plans.
It is also a truism that any assets in excess of those needed to pay benefits that are not in the plan will not be available to pay benefit improvements or to fund ongoing cost-of-living-adjustments. Studies show the most important factor in determining cost-of-living increases are surplus assets!
On the second point of savings policy, the commentary doesn't even mention the fact that over the past two decades, the build-up of assets in pension trusts has represented the largest share of national savings - savings which, even with the build-up in pension trusts, is at anemic levels. That we would be discussing the de-funding of our largest source of national savings at this time is outrageous. Which leads to a related subject - the availability of these "surplus assets" to corporations to make them stronger and more profitable.
That we should strive for strong and profitable companies is a worthy goal. Yet the commentary points out that the firms with the highest borrowing costs, that is, the worst, highest risk companies - will take the assets because finance markets won't lend them the money. It seems the current Congress is advocating the robbing of Peter to pay not Paul, but the highest risk companies.
On this score, proponents of the reversion plan - and Mr. Peskin and Ms. Barnes allude to it - claim that companies can put excess pension assets to better, more efficient use than can the funds. As was just mentioned above, pension assets are not sitting idly in some dusty vault but are already being applied by institutional investors throughout the economy to, perhaps, better risks than the corporate sponsor. (Where are the efficient market theory adherents amongst corporate sponsors on this one?)
It must be acknowledged, as well, that outside of the capital markets, corporate sponsors already have access to these assets.
That's right, corporate sponsors can already tap well funded plans by forgoing contributions to the plan as a result of their funding status - a more conservative and long-term access and one that better fits the long-term nature of pension liabilities.
Perhaps the most disturbing aspect of the current tax bill and its pension reversion proposal is the question of why it is being proposed in the first place.
Reportedly, while thousands of corporate sponsors will undoubtedly accept this early Christmas present from Congress, according to sources quoted in Pensions & Investments, only a handful of corporate sponsors are actively seeking its passage.
It seems that the primary motivation for Congress in pursuing this course is to gain the modest revenues (estimated to be $10 billion over seven years) that corporate income taxes on reverted assets would generate. I seem to remember that for years, pension experts around the country on all sides of the issue could agree on one thing, if nothing else. That is, that retirement income policy in this country should not be driven by budgetary considerations.
It is time a scrap the pension reversion proposal and return to that principle. Only then will we be able to tackle the real problems of the private pension system and develop public policy that is truly in the interest of plan participants and beneficiaries.
Peter S. diCicco
Industrial Union Department
An Aug. 21, page 17 article on Spain's mutual fund market did not mention Wright Investors' Services, a global money management firm.
We have had a distribution agreement since the early 1990s with Banco Banif de Destion Privada, one of the oldest private banks in Spain.
Banco Banif is the sponsor of Wright Investors' Service managed EquiFunds, a Luxembourg entity with 12 country-specific and regional equity subfunds.
Banco Banif, in addition to investment advice, also provides distribution for EquiFund throughout Spain. We also have distribution agreements with major banks and financial institutions in Hong Kong, Germany, Brazil, Italy, France, Portugal, the United Kingdom, Switzerland, the Netherlands, Austria and Japan.
Amit S. Khandwala
Wright Investors' Service
The Sept. 4 software/databases directory did not include information on Rescom Ventures Inc.'s International Manager portfolio accounting system.
It is a full featured accounting and management system designed for small portfolio, equity, fixed-income and mutual fund managers as well as banks and insurance companies. It offers full multicurrency accounting, AIMR performance reporting and a general ledger interface. Securities, including international issues, are priced via electronic interface. A DTC interface will be available in 1996.
International Manager was first installed in 1987. Eighty installations at 60 firms are currently in use. It cost $30,000 and up.
International manager is compatible with DOS and UNIX operating systems with a Windows version coming in 1996.
For more information, contact me at (204) 488-6242 or at 100-383 Dovercourt Drive, Winnipeg, Manitoba R3Y 1G4.