WASHINGTON - The PBGC is eliminating its annual list of the 50 worst-funded corporate pension plans because changes in federal law have made the list obsolete, the agency's executive director said.
The Pension Benefit Guaranty Corp.'s list has been published annually since 1990 as a publicity vehicle to prod employers to better fund their pension plans and to make plan participants more aware of the funding levels of their plans.
But Executive Director David Strauss says the Retirement Protection Act, which Congress passed in 1994, has eliminated the need for such a list.
"With the 1994 law, we have better new tools" to assure adequate funding and notice to participants of how well their plans are funded, he said.
Among other things, the 1994 law requires employers to accelerate contributions to underfunded plans, reducing the PBGC's risk that it will be hit with a big claim when companies develop financial problems and terminate their pension plans.
The law also requires employers with underfunded plans - defined as less than 90% funded for promised benefits - to disclose to participants their funding levels as well as the limits of PBGC benefit guarantees if the plans are terminated and taken over by the agency.
Mr. Strauss, who joined the PBGC about two months ago after serving as deputy general counsel for Vice President Albert Gore Jr., also said it was unfair to put companies on a public list when they met or exceeded all pension funding requirements.
In its early years, the list was studded with pension plans that were grossly underfunded.
Indeed, the 1990 list, based on 1988 information, included 14 employers whose plans were 50% or less funded, and at least six companies on that list later terminated plans, saddling the PBGC with more than $2 billion in losses.
In all, plans on the 1988 list were 77% funded for guaranteed benefits.
By contrast, none of the employers on the 1996 list, based on 1995 information, was less than 50% funded. On average, they were 88% funded, a reflection of greater contributions many of those companies have made to their plans and high investment returns employers have earned on plan assets.
By including even relatively well-funded plans on its top 50 list, "we singled out plans that did not pose a significant risk to the PBGC or to participants," Mr. Strauss said.
Indeed, since 1975, just 19% of PBGC's $5.6 billion in losses came from plans that were at least 50% funded, and only 2.1% of claims came from plans that were at least 75% funded. By contrast, 78% of claims came from plans less than 50% funded when they were terminated and taken over by the PBGC.
The elimination of the list drew raves from employer trade groups and benefit consultants. One persistent criticism of the list was that it overstated liabilities by using unrealistically low interest rate assumptions, noted Frank McArdle, a consultant with Hewitt Associates L.L.C. in Washington.
James Lockhart was the PBGC chief during the Bush administration; he made the decision to release the list of the most underfunded pension plans. He criticized the axing of the Top 50 list, noting it was a catalyst for some companies to accelerate contributions to their plans.
Elimination of the list is premature in view of the substantial underfunding that still exists, said Mr. Lockhart, now a partner at Net Risk Inc. in Greenwich, Conn.
"It was a useful reminder to participants and (other) people of the underfunding. On the other hand, I can't argue that the PBGC has had a very strong turnaround," and reported a surplus of around $1 billion this year, he said.
But Larry Sher, a principal at The Kwasha Lipton Group in Fort Lee, N.J., said the tough 1994 pension funding rules make it much tougher for plans to become poorly funded.
