The monthly totals of plan termination notices received are charted in figure 3. Figure 4 illustrates how the actual intake of termination. notices compares to the planning level-the "estimated" line-on which the current budget plan is based. Emphatically illustrated in figure 4 is the extent to which terminations have exceeded anticipated levels since September, when our budget plan was developed. I might add that these charts have been updated to show what has been the experience in the month of January and at this point I would just like to show you what that experience has been. This chart (fig. 3) shows the number of pension plan termination notices we have received each month since the corporation was established. When we last appeared before this committee we had the data up until this point. We appeared in May and we had data up through April of 1974. We were saying at that time that the workload was above what had been anticipated. The best information we had at that time was based on a study conducted in 1972 by the Treasury and Labor Departments, and that study showed that approximately 100 pension plans terminated each month. That would be the line labeled, "Original Planning Level." As you can see, when we first started out we exceeded that level. Then we dropped off and for a time we were uncertain as to where we were going. But then there was a general upward trend and when we appeared before this committee we were on the upsurge. During the next few months the experience more or less leveled off at that higher rate and then, as you can see, it rose dramatically at the end of 1975. The first month of 1976 shows a high rate but much lower than the December 1975 rate. We attribute this high December 1975 rate to the fact that it is the end of a calendar year and many plans are on a calendar year basis. Apparently they thought this is the time to wind up. "If we are going to terminate we will do it at the end of the year." Mr. FLOOD. Suppose you put a copy of that chart in the record at this point. Mr. SKOPIC. Yes, Mr. Chairman, we will be happy to. We have the figure attached to our presentation which goes up through Mr. FLOOD. I want a copy of the chart. Mr. SKOPIC. All right. We will do that. [The information follows:] 1974 ACTUAL PENSION PLAN TERMINATION CASE OPENINGS SEPT OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEPT 1500 1400 1300 1200 1100 1000 900 900 800 800 700 700 600 500 300 200 100 0 600 500 400 300 200 100 ORIGINAL PLANNING LEVEL SEPT OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEPT 1974 NUMBER OF PLAN TERMINATION CASE OPENINGS Mr. SKOPIC. This next chart (figure 4) is plotting what has been happening with the termination notices in comparison to our projection for this budget. Our estimate of what would happen in terms of the number of pension plan terminations is shown by the black line labeled, "Estimated." We thought when we were putting together our 1977 budget that there would be an increase in termination peaking at about the end of 1975, and then it would trail off in 1976 and into 1977, getting back on to what you might consider a long-term historical trend line which is more or less along where I have the pointer. As you can see, our projections were fairly good up until December; the actual data have been varying around what we estimated. Of course, it rose dramatically in December and then dropped in the next month. It is this experience and the unknowns as to where this line is going to go from here that causes me to raise a note of caution in viewing the figures in this budget. Mr. FLOOD. Then let us have a copy of that chart also in the record. Mr. SKOPIC. We will be happy to do that. [The information follows:] Mr. SKOPIC. Our projected backlog situation is charted in figure 5, based on the estimated termination rate used in developing our budget plan. The actual situation through December 1975 is plotted and illustrates that the sharp increase in terminations has produced a significant variance. While the actual number of terminations is higher than expected, we do not know if past statistical characteristics of terminating plans will hold true for plans terminating after enactment of ERISA. The Treasury-Labor Study of Pension Plan Terminations, 1972, was the basis for most of the assumptions concerning the characteristics of terminating plans underlying our fiscal year 1977 budget presentation. A draft Department of the Treasury update of that earlier study using data from plans terminated during January-August 1974, indicates that a smaller percentage of terminating plans are insufficiently funded and those are smaller in terms of assets and participants. Although we will not know positively until our final regulations for determining sufficiency are in place, we believe that an even smaller proportion of the post-enactment terminating plans are insufficiently funded. If the above indications prove correct, then the large unanticipated increase in terminations which has occurred during the last few months might be substantially offset by the fact that fewer will end up as insufficient. These indications, if confirmed, will also impact on the cash needs analysis to be made in connection with the premium rate study mentioned above. Because of these uncertainties, Mr. Chairman, the budget plan presented today, which provides for 571 positions and $45,575,000, must be viewed with caution. We hope that it will be adequate, but we cannot be positive that it will be. We will, of course, keep you advised of any significant changes in these estimates. Our presentation outlines the corporation's accomplishments over the past year, and the objectives it has set for itself for the remainder of fiscal year 1976 and fiscal year 1977. Of major note has been the corporation's ability to initiate processing of approximately 6,000 plan termination cases and to finish processing over 2,000 of them. That 6,000 figure is approximately the number of pension plan termination notices that the Corporation has received since September 2 of 1974. The significance of this accomplishment can only be appreciated when what is involved is understood. As you well know a pension plan is a complicated arrangement providing a variety of benefits to participants. These benefit provisions differ from plan to plan. ERISA did not define which of these variety of benefits constitute a basic benefit under the termination insurance program. Nor did it say how these future pension benefit promises are to be valued. For example, what is the value at the time of termination of a $100-permonth benefit for a 50-year-old man payable when the man reaches age 65? The act also did not contain specific rules for valuing plan assets or allocating these assets to various priority classes of pension claimants. And there were unresolved questions regarding how the statutory $750 per month maximum limit on basic benefits guaranteed by PBGC was to be applied. Incidentally, the limit for plans terminating in 1976 is $869.32 per month due to increases in the Social Security Act contribution and benefit base, to which the limit is tied. In order for the Corporation to process a termination case, it is necessary for it to have rules on all of these points. I am happy to say |