WASHINGTON - Several top executives and Washington insiders continue to be frustrated by the Pension Benefit Guaranty Corp.'s "Top 50" list, calling it a gimmick that unintentionally scares retirees.
Myra R. Drucker, chief investment officer at Xerox Corp., Stamford, Conn., and chairwoman of the Committee on Investment of Employee Benefit Assets, said the list misrepresents the true status of the defined benefit pension system.
"It overstates pension liabilities by using a point-in-time measure and an artificially low interest rate of 5.3%," said Ms. Drucker, whose company is not on the list. "The 5.3% rate . . . is even lower than what an investor could have earned on long-term Treasury bonds. The PBGC's own earnings rate for its conservative portfolio is higher."
Sharply declining interest rates caused underfunding in single-employer pension plans to skyrocket 106% to $64 billion in 1995.
Underfunding for the annual list of 50 companies with the largest unfunded liability also rose significantly: It jumped 128% to $30.8 billion in 1995 from $13.5 billion in 1994. The PBGC would have to pay participants these unfunded guaranteed benefits if a plan were terminated.
The PBGC used its lowest interest rate ever - 5.3% - to determine pension underfunding. It also is the largest percentage decline ever from a year earlier when the rate was 7.15%. In 1994, pension underfunding was $31 billion.
An agency spokeswoman said the PBGC uses the same interest rate and mortality assumptions that would have been used to purchase an annuity as of Dec. 31, 1995. It's as if the plan terminates and an annuity needs to be purchased for every participant.
"The PBGC must measure exposure, and we do that by determining the cost of termination based on the current price for all obligations," the spokeswoman said.
But the agency can get across its message without distorting the picture, said James Klein, president of the Association of Private Pension and Welfare Plans, Washington. For instance, selecting 50 companies to be on the list isn't fair because more than half of the companies have an 80% or higher funding ratio. The agency should focus on whichever number of companies have low funding ratios, shaky financial situations, and/or other factors that could identify companies that might be in financial trouble.
"They shouldn't do a list at all if they are going to perpetuate the fiction - that a plan that is very likely to be ongoing should be decreed terminated," Mr. Klein said.
The top 50 represents 48% or $30.8 billion of the total underfunding, but, overall, about 66.7% of single-employer plans are fully funded, the agency reported.
"Pension underfunding persists, and we are addressing it," said PBGC Executive Director Martin Slate.
"We have the reforms in place to improve pension funding over time and a financially sound insurance program to protect workers' pensions," he said.
Several companies moved off of the list this year because of increased funding contributions. Company contributions through September 1996 are reflected in the PBGC's list of worst funded plans for 1995.
Ravenswood Aluminum Corp., which had the highest unfunded liability percentage for the past four years, moved off the list after it agreed in April to contribute $100 million to its two pension plans.
Also off the list is Uniroyal Goodrich Tire, which had been on all seven previous lists. Uniroyal's parent, Michelin North America, Greenville, S.C., made a one-time cash contribution of $380 million last year to eight pension plans. Uniroyal's plans were only about 50% funded in 1993, with assets of $540 million and liabilities of about $1 billion.
Still, several new companies made the list, including Exxon Corp., which had $438 million in unfunded guaranteed benefits and a 90% funding ratio, and K mart Corp., which had a $211 million unfunded guaranteed benefit and an 89% funding ratio.
Starfire Holding Corp. tops the list with the lowest guaranteed funding ratio of 54% and an unfunded guaranteed benefit of $738 million.
Other companies, which were knocked off the 1994 list because of favorable interest rates, found themselves back on the list for 1995.
General Motors Corp., which made a $10 billion cash/stock contribution to its plan in 1995, had a $2.6 billion unfunded guaranteed benefit and had a 96% funding ratio; it just missed being left off the list and was ranked 50th for 1995.
The APPWP's Mr. Klein also criticized the agency for inappropriately using a dollar amount to determine which plans are in jeopardy.
"A strong plan that is underfunded by $50 million but is 90% fully funded is certainly less of a risk than a weaker plan that is underfunded," he said.
The 1995 list shows 14 companies had a 90% or higher guaranteed funding ratio. In 1994, only four companies had a 90% or higher ratio.
About 30% of pension underfunding was found in the transportation equipment and auto industries.
Companies from the steel industry comprise 20% of the under funding on the list.