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about 2% are experiencing severe financial
hardship, indicating a high potential for

plan termination within 5 years.

The aggregate

unfunded liabilities of these plans in 1977

exceeded $350 million;

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another 10% are experiencing significant
financial hardship, which may result in ter-
mination though not necessarily within the

next five years.

The aggregate unfunded

liabilities of these plans in 1977 was about

$3.5 billion; and

the statutory provisions concerning employer
liability may impose heavy burdens on employers
contributing to financially weak on-going
plans. This may adversely affect the growth,

continuance and new plan formation of covered

multiemployer defined benefit plans.

This study was provided to the Congress, and hearings were conducted on the potential multiemployer plan problems.

Last December, Congress passed Public Law 95-214, which deferred

from January 1, 1978 to July 1, 1979 the date on which PBGC's guarantee of benefits under terminating multiemployer plans becomes mandatory. In addition, that law requires PBGC to

present a report to the Congress by July 1, 1978 which addresses

the anticipated financial condition of the program relating to

mandatory coverage of multiemployer plans and includes alterna

tive courses of action which might be taken to insure proper coverage of multiemployer plans and the proper financing of the program relating to such plans. This project is being

given utmost priority within the Corporation.

That concludes my opening statement, Mr. Chairman. I

would be happy to answer any questions you may have.

Mr. Rose. We are available for any questions you may have.


Mr. FLOOD. How many pension plans are covered by the corporation now?

Mr. Rose. We have, Mr. Chairman, approximately 80,000 pension plans covered by the termination insurance program.

Mr. Flood. How many employees are in the plans?

Mr. Rose. There are approximately 33 million participants in those plans.

Mr. FLOOD. And the total assets of the plans are how much? Mr. Rose. The total assets I am not able to give you. Mr. FLOOD. For the record, you might be able to furnish that? Mr. Rose. We will try to get you a figure on that. [The information referred to follows:) Total assets in all private pension plans are estimated to be approximately $240.5 billion. It is not currently known what portion of that total is held under defined benefit plans covered by PBGC. However, this information will be available when processing of the combined annual report, Form 5500, is completed by the Internal Revenue Service.

Mr. FLOOD. What would be an estimate of the total unfunded liability of those plans?

Mr. Rose. We will try to get that to you also. Mr. FLOOD. A ballpark figure will do for that. [The information referred to follows:] There is, at present, insufficient data upon which to make an accurate estimate as to unfunded liabilities for the 80,000 plans covered by PBGC. After the data from the combined

annual report, form 5500, has been entered into the computer system by the Internal Revenue Service, we will have the capability of determining these figures. No plans were required to file Schedule B and provide information on their actuarial liabilities until their report for the plan year beginning in 1976. Since the last of these annual reports is not due until July 30, 1978, complete information is not likely to be available before 1979.

TERMINATING PENSION PLANS Mr. FLOOD. Your estimates of terminating pension plans, as you know, have consistently been on the low side. You always underestimate things. Why is that?

Mr. Rose. Not only were we surprised, Mr. Chairman, but almost everybody was when, after the enactment of ERISA, the number of terminations turned out to be the number that occurred, but the peak seems to have hit at the end of 1976. The general trend has been downward in the number of terminations since then.


Mr. FLOOD. On page 29 there are three different types of cases shown: administrative closings, notices of sufficiency, and trusteeship. Suppose you take a minute and explain what you mean by these categories.

Mr. ROSE. The administrative closings are primarily disposing of notices of intent to terminate, which in fact probably should not have been sent to us in the first place. Sometimes we receive notices from plans that are not covered by our program. I mentioned 80,000 plans are covered by the termination insurance pro gram. There are in this country perhaps three-quarters of a million retirement plans all told. The 80,000 represent defined benefit plans and sometimes plans that are not in that category will send us a notice erroneously.

The notices of sufficiency is an important stage in the processing of terminating cases. We consider when we issue a notice of sufficiency a case to be pretty much processed, that is, in the case of a sufficient plan-a sufficient plan being one where there are sufficient assets in the plan to pay for what we find to be guaranteed benefits—when we issue a notice of sufficiency the plan administrator is free to make a distribution of assets to the participants.

The other category of cases are those in which plan assets are insufficient to cover guaranteed benefits and which we take into trusteeship.

CASE BACKLOG Mr. Flood. What is your backlog? Mr. Rose. I believe it is about 4,500 cases. Mr. FLOOD. What was it a year ago? Mr. ROSE. The backlog, Mr. Chairman, was over 5,000 a year ago.

CASE PROCESSING Mr. FLOOD. On page 15 you discuss case processing and the progress you have made in 1977. However, in the last paragraph there you say that this progress may look better than it really is. What do you mean by that last statement?

Mr. ROSE. Mr. Chairman, that refers to the fact that in earlier years we tried to process as many cases as possible in order to keep as few participants waiting as possible. We took many of the easiest cases first. Many of the cases we are now processing have more difficult questions involved.


Mr. Flood. We know that your premium rate for single-employer plans was raised to $2.60 per participant. Suppose you give us the background behind that.

25-260 (Pt. 7) 0 - 78 - 56

Mr. Rose. Mr. Chairman, you may recall when Congress passed ERISA the premium for single-employer plans was rather arbitrarily set at $1 per participant per year because there was no real basis on which to choose a better figure. Experience showed that that did not generate enough money to pay for the liabilities that were being incurred.

After we had sufficient experience, we developed data which showed that the rate of approximately $2.60 could not only handle the liabilities as they were incurred but would amortize the deficit that was built up from the date of enactment.


Mr. FLOOD. Congress recently deferred until July 1, 1979, the mandatory coverage of multi-employer plan benefits. Can you give us the background on that?

Mr. ROSE. Yes, Mr. Chairman. When the Congress was considering termination insurance, representations were made to the appropriate committees at that time that the need for termination insurance for multi-employer plans was less than the need for single-employer plans. Congress responded to those representations in at least two ways: (1) It set the premium amount for multiemployer plans at 50 cents per participant per year instead of the $1 for single-employer plans, and (2) it deferred mandatory coverage for multiemployer plans until January 1, 1978, instead of making it immediately effective, as it did for single-employer plans.

Last summer we conducted a study. Our study showed that those representations were probably erroneous. You will see from the second page of the prepared testimony the conclusions from that study. Let me refer to two of them, if I may.

That study showed that about 2 percent of the multi-employer plans were experiencing severe financial hardship, indicating a high potential for plan termination within five years. The aggre gate unfunded liability of those plans in 1977 exceeded $350 million.

Another 10 percent of the multi-employer plans are experiencing significant financial hardship which may result in termination though not necessarily within the next five years. The aggregate unfunded liabilities of those plans in 1977 was about $3.5

billion. On the basis of that study and other information that was available to the Congress, the Congress did defer the mandatory coverage date from January 1, 1978, until July 1, 1979, but it also coupled that deferral with a mandate on the Pension Benefit Guaranty Corporation to come forward and present a report by July 1 of this year with its analysis and recommendations for handling this problem. We are very hard at work doing just that.


Mr. FLOOD. What is the situation with the coal miners' pension fund? What is the strike doing to the fund?

Mr. ROSE. Mr. Chairman, first let me say that the mineworkers' pension plans have not been terminated, so that we are not involved.

The plan which is of most concern is called the 1950 UMWA pension plan. That fund has some 81,000 retirees in it. They had been receiving $250 a month, and that amounts to almost $20 million a month. When the mine strike started in December of 1977, the fund had very low reserves. You know that they depend upon royalties from coal production for income into that fund, and they did receive sufficient royalties in December from production prior to the strike to pay the January 1 pension payment. But as the strike continued there was not sufficient money to pay the February 1 payment, and that is the situation to date as far as I know.

POSSIBLE NEED FOR AN APPROPRIATION Mr. FLOOD. In light of all the uncertainties surrounding ERISA, what is the likelihood in your opinion of the corporation needing to use the general fund of the Treasury to meet its obligations? I do not mean tomorrow morning but at some point in the foreseeable future.

Mr. Rose. Under the present law that could not happen. It would require new congressional action. Under the present law we must pay benefits to multi-employer plans only out of premiums received during the discretionary period. Furthermore, during the discretionary period we are not allowed to pay benefits from borrowed funds.

Mr. FLOOD. You understand what I mean.

Mr. ROSE. We are quite confident that the single-employer program is on a sound footing with the newly raised premium. As to the multi-employer plan program, we are very intensively working to prepare the report that Congress has mandated that we prepare, and we hope that we will be able to make recommendations to put that on a sound footing. That report will be forthcoming by July 1.

RELATION OF TRUST AND REVOLVING FUNDS Mr. Flood. The corporation has revolving funds and trust funds? Mr. ROSE. That is correct.

Mr. Flood. Suppose you explain that to us. Tell us how they relate to each other.

Mr. Rose. The revolving funds are funds that are located in the Treasury Department, and that is where our premium income is deposited. The trust funds are made up of assets of insufficient pension plans that we take over as trustee and collection of employer liability.

Mr. Flood. By the way, how long have you been on board?

Mr. ROSE. I am the general counsel and I have been with the corporation since its inception.

Mr. FLOOD. How long is that?

Mr. Rose. September 2, 1974. We pay the benefits to participants out of the revolving fund and then we reimburse the revolving fund from the trust fund on a proportionate basis. The net result is that we pay the benefits partly from the revolving fund and partly from the trust fund. On the average we expect that to be about a 40-60 split.

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