A recent GAO report found that funding levels among the largest 100 defined benefit plans has dropped overall since 1995, with almost one quarter of them funded less than 90% by 2002. In addition, the Pension Benefit Guaranty Corp. (PBGC) insurance program faces at least $96 billion in underfunding for company pension plans that had a “reasonably possible” chance of termination, the GAO report says.
The GAO also called for comprehensive pension reform, or, if that cannot be achieved, at least funding changes, including limiting the use of funding standard account credits as a substitute for cash contributions and strengthening the role of the additional funding charge (AFC) to help shore up a firm’s defined benefit pension plan. The GAO found that by the time a financially weak firm is subject to the AFC, its pension plan is already “likely significantly underfunded.”
The Bush Administration is aiming high, calling for an overhaul of pension funding rules. “The GAO’s report illustrates the need for comprehensive reform,” states Assistant Secretary of Labor Ann Combs, in a press release. “Its detailed analysis shows that deficiencies in the current funding rules fail to ensure adequate funding and place the retirement security of more than 34 million American workers and their families at risk.” To view the GAO’s report, go to the PDF file here.