Federal Rules Making the Nation's Private Pension Problem Worse, GAO Finds
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Published: May 31, 2005 Right-click here to download pictures. To help protect your privacy, Outlook prevented automatic download of this picture from the Internet.

WASHINGTON (AP) - The federal rules designed to ensure that millions of people receive their private pension benefits are flawed, making it easier for retirement plans to have risky financial shortfalls, congressional investigators have found.

"Our work shows that although the current system permits flexibility, it also permits reported plan funding to be inadequate, misleading and opaque," says a new report by the Government Accountability Office. Such federal oversight, the GAO said, does not appear to serve the interest of any stakeholder of a private, guaranteed-benefit pension plans.

The Pension Benefit Guaranty Corp., a federal agency that insures the private pensions of millions of workers, saw its deficit more than double to $23.3 billion last year with the collapse of underfunded pension plans at large companies. The underfunding of pension plans grew from $39 billion in 2000 to more than $450 billion by September 2004, the GAO says.

The government's own rules are contributing to that problem, the GAO found, because of leeway in the way companies can count assets and liabilities. As one example, the GAO faulted rules that allow companies to avoid making cash contributions to their plans by counting "credit" instead, which can mask problems and cause volatility in financial standing.

The GAO called for Congress to consider broad pension reform.

"The GAO report confirms what we have been saying all along: The rules must be changed to ensure that companies keep the pension promises they have made to their workers," said Bradley Belt, executive director of PBGC. The agency guarantees payments of benefits earned by 44 million workers and retirees participating in private pension plans.

The report, released Tuesday by PBGC, is expected to be posted by the GAO on Wednesday.

From 1995 to 2002, 39 percent of defined-benefit pension plans were less than 100 percent funded. In addition, on average, more than 60 percent of the largest plans each year made no cash contribution because of rules allowing sponsors to use credit for minimum requirements.

Ann Combs, assistant secretary of labor, agreed with the GAO findings, saying "a large part of today's severe funding and contribution problems can be traced to the funding rules themselves." She said the Bush administration has embraced the call for sweeping reform.