Summary: Pursuant to a congressional request, GAO assessed the: (1) causes of large claims against the Pension Benefit Guaranty Corporation's (PBGC) insurance program; and (2) potential effects of the Single Employer Pension Plan Amendments Act (SEPPAA).
GAO found that: (1) 90 percent of the $501 million in claims against PBGC from 1983 through 1985 resulted from 23 employers terminating 33 pension plans; (2) even if those employers had made all of the required contributions to their plans, the 33 plans would still have been underfunded by $317 million; (3) benefit increases before termination contributed to underfunding of 27 of the 33 plans; (4) the 23 employers made only about half of the required contributions in the 5 years before they terminated their plans; and (5) the Internal Revenue Service (IRS) waived about 23 percent of the unpaid contributions. GAO also found that: (1) SEPPAA prevented claims from plans terminated by firms that were not financially distressed, but financially distressed employers accounted for 96 percent of the claims from 1983 through 1985; (2) SEPPAA increased employers' liability to PBGC to 75 percent of unfunded pension benefits; (3) PBGC claims against employers in bankruptcy proceedings have a low priority; (4) SEPPAA increased the annual premium rate more than 300 percent, but the rate increase will not generate enough revenue to offset the growing PBGC deficit; (5) the PBGC deficit tripled in 1986, primarily because of large claims from one bankrupt employer's terminated plans; and (6) the annual drain on PBGC assets could render the program insolvent by 2002.
