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GAO-04-200R 1 (2003-12-17)

handle is hein.gao/gaobaamjw0001 and id is 1 raw text is: I Accountability * Integrity * Reliability United States General Accounting Office Washington, DC 20548 December 17, 2003 The Honorable Earl Pomeroy Ranking Minority Member Subcommittee on Oversight Committee on Ways and Means House of Representatives Subject: Private Pensions: Timely and Accurate Information Is Needed to Identify and Track Frozen Defined Benefit Plans Dear Mr. Pomeroy: While private-sector pensions help millions of Americans achieve retirement income security, the number of private defined benefit (DB) plans' has declined substantially over the past two decades. Recently, those concerned with the viability of the private defined benefit pension system point to significant increases in pension contributions plan sponsors must make and to the fact that most plans are currently underfunded. The underfunding of plans, due in large part to the sharp decline in the stock market combined with a general decline in interest rates, has increased substantially. The Pension Benefit Guaranty Corporation (PBGC), whose single-employer insurance program insures the benefits of over 34 million workers and retirees in private defined benefit plans,2 estimated that the total underfunding exceeded $350 billion as of September 4, 2003. Between 1999 and 2002, roughly 7,000 DB plans participating in the PBGC single- employer insurance program were terminated. PBGC trusteed, or took over, about 5 percent of these plans because they did not have enough assets to pay benefits due to participants. When PBGC takes over a plan, participants may receive a reduction in expected retirement benefits.3 According to employer groups, plan sponsors face inflated and unpredictable pension contributions that have greatly diminished the attractiveness of maintaining DB plans. As a result, employer groups have suggested that plan sponsors may consider iEmployers may sponsor DB and/or defined contribution (DC) plans for their employees. DB plans promise to provide a benefit that is generally based on an employee's salary and years of service. DB plans use a formula to determine the ultimate pension benefit participants are entitled to receive. Under a DC plan, employees have individual accounts to which the employee, employer, or both make contributions, and benefits are based on contributions to and investment returns (gains and losses) on the accounts. 'There are two federal insurance programs for defined benefit plans: one for single-employer plans and another for multiemployer plans. Single-employer plans provide benefits to employees of one firm or, if plan terms are not collectively bargained, to employees of several unrelated firms. 'The benefit PBGC pays to a participant whose plan has been terminated and taken over by PBGC depends on the provisions of the terminated plan and certain statutory limits that specify maximum benefit payments among other factors. GAO-04-200R Private Pensions

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