Changes in Pension Laws Go beyond Increases in Annual Premiums Paid

By Jonathan P. Hicks, Ny Times | THE JOURNAL RECORD, December 31, 1987 | Go to article overview

Changes in Pension Laws Go beyond Increases in Annual Premiums Paid


Jonathan P. Hicks, Ny Times, THE JOURNAL RECORD


pension laws and how to reduce the mountainous deficit of the federal agency that insures pension payments, sweeping changes were enacted last week that will significantly affect the payments companies must contribute and the guidelines under which employers must operate.

For most companies, the changes in the pension laws, which will affect about 112,000 pension programs that cover 38 million workers, will nearly double the annual amount companies pay to the Pension Benefit Guarantee Corp., to at least $16 per employee, from the current $8.50.

But the changes go far beyond increases in the annual premium. Under the new provisions, companies whose pension plans are underfunded will, beginning in 1989, be forced to pay higher premiums based on a formula that could make annual payments jump more than sixfold, to $50 per worker for the most severely underfunded plans.

The changes were part of the deficit reduction bill signed by President Reagan and they come after the most tumultuous year in the history of the pension agency.

As a result of the new pension provisions, companies will now be forced to pay much higher premiums to the pension agency. On the other hand, officials of the agency contend, further increases in premiums - they were $1 per employee in 1974 - will be unlikely for several more years since the new rules require companies with underfunded plans to make sharply increased payments.

Officials of the guarantee corporation say that the variable-rate premium will bring to the agency an additional $400 million in each of the next two years.

``It makes further premium increases less likely for well-funded plans in the future,'' said Royal S. Dellinger, assistant director of the pension insurance agency.

In dollar figures, the changes in the rules will mean a near doubling for the 83 percent having fully funded pension plans. For the remaining 17 percent, there will be variable rates that increase depending on the underfunding of the pension plan. They will pay an additional $6 per employee for every $1,000 of unfunded benefits. Four percent of the companies' plans will be forced to pay the $50-per-employee maximum premium.

The maximum premium will be reduced for five years for companies that made the maximum payment to their pension plans before the enactment of the new rules.

Under the new provisions, companies will be required to make quarterly payments to the guarantee corporation, rather than the current practice of making annual payments. Also, there are higher penalties for failure to meet the due dates.

Significantly, the new regulations state that the liability for making payments now rests with the parent company rather than with a subsidiary or operating unit of a company. …

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