WASHINGTON - After 22 years of being in the red, the Pension Benefit Guaranty Corp. hit its first surplus in the single-employer program's history.
President Clinton thought the accomplishment was so important he announced the PBGC's $869 million surplus for 1996 at a news briefing at the Old Executive Office Building.
The agency had $12 billion in assets and $11.1 billion in liabilities for the single-employer program as of Dec. 31. The multiemployer program had $505 million in assets and $381 million in liabilities, posting a $124 million surplus for 1996.
President Clinton said the 1994 Retirement Protection Act - which quickened the contribution schedule and increased premium payments for certain underfunded pension plans - was a key reason for the surplus.
"When I took office, (the PBGC) was facing a $3 billion deficit," President Clinton said. "Millions of Americans' pensions were in jeopardy . . . Thanks to the actions of the last four years, the corporation has made a remarkable recovery."
President Clinton attributed the agency's success to the late Martin Slate, the PBGC's executive director who died in late February.
Acting Executive Director John Seal said increased insurance premium revenue from underfunded plans, investment gains and a lack of major plan terminations all contributed to the single-employer program's surplus.
The agency had reported a deficit ever since its creation in 1974. In 1993, the single-employer plan deficit hit a record $2.9 billion.
According to the agency's 1996 annual report, the more than $1.1 billion it collected in premium income for the single-employer program was a 37% increase from 1995.
Anthony Calhoun, chief financial officer of the PBGC, attributed the large jump in premium revenue to the decline in interest rates, which in turn increased unfunded liabilities in pension plans. Premium payments generally are determined by a pension plan's funding level.
But it is those quicker payment schedules and higher premium payments that are turning employers away from defined benefit plans, some observers said.
"Lowering premiums would be an extraordinary way of reducing taxes on, and increasing the attractiveness of, defined benefit plans," said Mark Ugoretz, president of the ERISA Industry Committee, Washington.
"This is the time to take a fresh look at defined benefit plans and the role they play in a healthy retirement system."
The Labor Department's latest abstract of the 1993 Form 5500 annual reports showed a 5.7% decrease in defined benefit plans to 83,596. The number has decreased steadily since 1986, when there were 172,642 defined benefit plans.
Lynn Dudley, vice president for retirement policy at the Association for Private Pension and Welfare Plans, Washington, said the APPWP plans to introduce a proposal to create a fairer premium schedule for underfunded pension plans.
The proposal is still under wraps, but Ms. Dudley indicated it would include a more realistic mathematical computation to determine funding levels, which in turn would determine premium payments.
She added the way the law dictates companies calculate liabilities causes different problems for certain companies. The 1994 Retirement Protection Act requires that companies use specifically set interest rate assumptions and mortality tables. While some companies dislike the interest rate assumption, others have problems with the mortality table being used.
Currently, fully funded plans pay a premium charge of $19 per participant. Underfunded single-employer plans pay an additional variable-rate premium charge, which used to be capped at $53 per participant. The 1994 Retirement Protection Act phases out the cap on the variable-rate charge for most plans over three plan years.
The PBGC's Mr. Calhoun said the agency is sympathetic to companies adversely affected by interest rates, but that changing the premium payment schedule "is not on the table right now."
The PBGC's annual report showed an investment gain of $927 million, up 8.5% in 1996.
The agency's $4.4 billion equity portfolio gained 19.7%; its benchmark, the Wilshire 5000, gained 18.9%. The PBGC's $7 billion fixed-income portfolio increased 2.2%; its benchmark, the Lehman Brothers Long Treasury Index, gained 2.3%.
Meanwhile, the agency negotiated 11 settlements valued at more than $1 billion in 1996. The PBGC was involved in 788 bankruptcy cases and 81 active litigation cases in state and federal courts.
The PBGC became the new trustee to 233 single-employer plans, many of which terminated prior to 1996.
Overall, the agency paid about $792 million in benefits to nearly 200,000 people in 1996, a 10% increase from 1995. The agency was responsible for the pensions of about 441,000 people and 2,348 terminated pension plans.
At his news conference, President Clinton also announced the Department of Labor recouped nearly $22 million for 40,800 workers through its crackdown on 401(k) plan abuse.
Under the Labor Department's initiative, investigators discovered some employers were misusing or borrowing employees' 401(k) plan contributions for personal or corporate business.
Since starting the program in 1995, 1,672 cases have been opened, 746 of which have been closed; 262 of these were found to have violations.