At Last: Pension Reform

Private pension funds constitute one of the largest unregulated pools of capital in the U.S. economy not subject to strict federal regulation. Estimates of the money paid into those plans go as high as $185 billion, and 23 million or more Americans are relying on those dollars to help provide a comfortable standard of living after they retire. Unfortunately, all too many of them have had no real assurance that they will ever see a cent of the money. Now workers can breathe somewhat easier: Congress is set to enact this week a long-overdue pension reform bill designed to make sure that employees collect the benefits they earn.

Left Out. Many scrupulous employers, of course, have set up pension plans that protect their workers. But since the first private pension plans were established about 100 years ago, inequities have been common. Some workers have discovered that after years of service to an employer they had somehow failed to qualify for benefits. Others found that changing jobs or being put on layoff could deprive them of their benefits. The disappearance of a company through collapse or merger, or the bankruptcy of its pension fund because of inept or corrupt management (some pension officers have been known to lend money to friends or relatives at low interest) could leave veteran workers with little retirement income or none. In one celebrated pension catastrophe, when the Studebaker auto factory in South Bend, Ind., closed in 1963, 4,500 workers under age 60 were able to collect only 15% of the benefits they were entitled to after an average 23 years of service.

The complex, 501-page Employee Benefit Security Act would create a Pension Benefit Guaranty Corp. (officers: the Secretaries of Labor, Treasury and Commerce) to insure pensions in much the same way that the Federal Deposit Insurance Corp. protects depositors in banks that go bust. With only a few exceptions, an employer who sets up a pension plan must buy insurance from the PBGC. If a company or its pension fund goes broke, the federal agency can pay up to $750 a month to the workers who were "vested"--that is, had gained rights that could not be forfeited even if they left the company. Generally, the bill requires that employees be fully vested after ten or 15 years of service. In addition, employers must make specified minimum annual contributions to the fund, give the Secretary of Labor an annual audit certified by an independent accountant, and follow new rules aimed at honest management.

Those provisions are enough to make the act "landmark legislation" in the view of Bertran Seidman, Social Security director of the AFL-CIO. But the law does not go far enough to please many advocates of pension reform. No employer would be required to set up a pension plan. Many blue-collar workers take their first jobs at 16 but would not have to be included in pension plans until they are 25 (though they must then be given credit for three years' vesting). Karen W. Ferguson, a Washington attorney and ally of Ralph Nader, complains that not requiring full vesting for ten or 15 years is unfair, given the high mobility of the U.S. labor force: "An employee fortunate enough to stay under a single pension plan throughout his work life will always be better off than his fellow worker who changes jobs." Noting that the bill allows employers to choose the vesting plan that costs the least and therefore provides the least protection to the employee, Ohio State Law Professor Merton C. Bernstein calls the measure "a grave disappointment" and worries that its passage will destroy the impetus for pension reform in the future. He has a point: the present bill was eight years in the drafting, under intense lobbying pressure all the while. Still, the act should go far toward assuring many workers of a more pleasant retirement.

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