The Retirement Protection Act of 1994 protects the benefits of American workers and retirees by increasing funding of underfunded
pension plans and strengthens the pension insurance program. Our pension system is fundamentally sound, but chronic underfunding
of pensions persists in some industries. Reforms in the Retirement Protection Act will improve pension funding in a balanced
and affordable way. Large underfunded plans will improve their funding from the current average of about 60% of vested benefits
to more than 85% within 15 years. The major reforms will:
- Reinforce the special requirement, known as the Deficit Reduction Contribution (DRC), for funding underfunded pension plans.
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- Accelerate funding for most plans that are less than 90% funded, with the fastest funding by plans that are less than 60%
funded.
- Eliminate the double counting of credits that weakens funding requirements.
- Constrain the assumptions that may be used to calculate pension contributions by specifying mortality tables and narrowing
the range of interest rates.
- Require severely underfunded plans to have enough cash and marketable securities to make current benefit payments.
- Limit required annual increases in contributions for the first seven years through transition rules.
- Grant excise tax relief to employers with both a defined benefit and defined contribution plan and repeal the quarterly contribution
requirement for fully funded plans.
- PBGC's annual insurance premium includes a flat-rate charge of $19 per participant that all insured plans pay and a variable-rate
charge paid only by underfunded plans. The variable-rate premium was capped at $53 per participant. The Retirement Protection
Act of 1994 phased out the variable-rate cap as an incentive to properly fund pension plans. The flat-rate charge was not
changed.
- Require most employers whose plans are less than 90% funded to provide a notice to participants, in simple language, on the
plan's funding and the limits of PBGC's guarantees.
- Establish PBGC as a clearinghouse for the benefits of "missing participants" in terminated fully funded plans.
- Require that companies and their controlled group members annually give PBGC detailed actuarial information on their underfunded
plans and financial information on the companies if the plans' underfunding exceeds $50 million, or there is an outstanding
lien for missed contributions exceeding $1 million or an outstanding funding waiver of more than $1 million.
- Require privately held companies and their controlled groups with plans underfunded by more than $50 million to provide PBGC
with 30 days' advance notice of significant corporate transactions.
- Provide PBGC with direct authority to enforce minimum funding requirements.
- Authorize PBGC to immediately file liens against an employer's assets on behalf of a plan, and for the full amount of the
missed contribution, if the employer fails to make a contribution of more than $1 million.
- Under separate bankruptcy reforms, allow PBGC to sit on creditors' committees.
rev 3/98
Single copies of publications and fact sheets are available from: Pension Benefit Guaranty Corporation, Communications and
Public Affairs Department, 1200 K Street NW, Washington, DC 20005-4026.
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