(This column first appeared in Employee Benefit News in February 2007)
As BenefitNews Connect reported recently, the Government Accountability Office (GAO) wants to expand oversight of employee pension benefits. Among other things, their report suggests substantially increasing the number of pension “compliance examinations.” Or, as normal people would say, audits.
According to the GAO, what’s ailing the U.S. pension system is that it’s not subject to enough regulatory accountability.
That’s a great conclusion – if your name is Borat. But, here in the real world, it can serve only one purpose:
Resolving the problem – by eliminating the thing itself.
The Vanishing Private Pension Plan
Let’s place the pension situation in context.
Once, defined benefit (DB) pension plans were the norm. In 1980, according to the GAO, nearly 70% of private-sector pensions were DB plans. By 2002, though, that figure had fallen to 39%.
Today, less than one in five American workers is covered under a DB pension – the lowest in many decades. That’s because, over the past 20 or so years, employers have terminated nearly 70% of the DB plans in the country. It’s part of a trend, identified by the Bureau of Labor Statistics, of steady movement away from all retirement benefits. Today, less than half of U.S. companies (48%) sponsor any kind of pension plan.
You’d think these findings affirm DB as an anachronism – a rightfully near-extinct relic, incapable of providing the support needed for a secure retirement. But you’d be wrong.
Why? Because you’d be overlooking the one arena in which DB is still the unquestioned, and largely unchallenged, benefits champion: the one thing government truly does best.
The Flourishing Public Pension System
At a time when private pensions are at their weakest, governmental plans have never been more attractive. As USA Today reported on February 21, “Retired government workers are twice as likely to get a pension as their counterparts in the private sector, and the typical benefit is far more generous.”
In 2005, for example, the median civil-service pension was $17,640. The comparable company pension paid less than $7,700. For this reason, the article noted, "retirees are finding that it pays to have worked for the government instead of the private sector."
Not a Level Playing Field
How did the scales get tilted so dramatically? Well, public pension plans get a number of breaks that aren’t available to private employers. They can easily accept pre-tax employee contributions to offset the cost of benefits. They don’t have to adhere to minimum finding rules, or perform painstaking calculations of relative benefit values at retirement. They aren’t at risk for layers of per-day, per-participant fines and “special taxes” for a range of infractions, real and theoretical.
Most of all, they aren’t exposed to the indignities and burdens imposed by the Pension Benefit Guaranty Corporation (sometimes referred to as “Mother PBGC”).
Only the private sector gets to enjoy these “protections” provided through three decades of pension reform.
Of course, Congress could have used existing legislation to target those few corporations that abused pension provisions. Instead, they chose to pass sweeping rules to punish companies for every conceivable transgression, whether or not any had actually been considered, let alone committed.
Put another way, it was as if, to stop five students who’d put gum beneath their chairs, the local principal made sitting illegal – for the entire student body. Like this “standing” rule, today’s pension regulations mainly punish those who do no wrong.
A Shot of Malaria
Our government is inarguably tough when it comes to “protecting” employee pensions. But that’s only with private employers – the most onerous of the rules don’t apply to government.
You’d expect regulators to promote stability and growth – by providing positive incentives, maybe even emulating conditions under which successful (i.e., governmental) plans are administered. Instead, the GAO proposes simply to turn up the pressure. The shrinking number of employers brave enough to continue sponsoring a DB pension must be wondering – how crazy is that?
In the words of Bob Dylan, “It’s like saying if you’ve got a cold, take a shot of malaria.”
So consider yourselves on notice, corporate America. Should the GAO get its way – you’ll soon be rolling up your sleeves.
