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Experts are predicting a Social Security meltdown in 2042. The pension fund disaster is just around the corner.

The Day of Reckoning is Coming 
to a Pension Fund Near You. 

The Financial Imbroglio

 • The California Teacher Retirement System faces an unfounded liability of more than $23 billion. Alaska’s pension plan is $5.2 billion in the red. San Diego faces a $2 billion shortfall while Houston’s pension deficit tops $1.5 billion. 
• The nation’s pension funds are underfunded by an estimated $450 billion. 
• From September 2003, to September 2004, 192 plans were terminated and sent to the Pension Benefit Guaranty Corporation (PBGC) vs. 155 in the twelve prior months. 
• In 2004, the PBGC posted a deficit of $23.3 billion, double the gap from 2003. 
• For the first time, the total number of people owed benefits by the PBGC passed 1 million in 2004.

More Onerous Funding Requirements are Impending

A number of reforms have been articulated that could become quite expensive for employers. Among these proposals are: 

• The PBGC would increase the basic annual premiums paid by companies to $30 per worker from the current $19 and impose automatic increases each year pegged to average wage increases of U.S. workers.
• Companies with troubled plans would pay even higher premiums, based on the extent that their obligations are underfunded.
• The administration wants to wipe out a mix of funding rules that have allowed companies to legally underestimate their future pension obligations.
• The administration proposes giving companies between seven and ten years to make up shortfalls in their defined-benefit pension plans. That is less time than the 20 years that some industries, including airlines, have said is needed.
• Bankruptcy laws may have to be changed so that Chapter 11 filers cannot dump their pension plans onto the PBGC.
• Similarly, a proposed bill by John A. Boehner, R-Ohio, would likely include a permanent interest rate fix; a requirement that companies fully fund their pension plans; and a repeal of an option that allows companies to skip pension payments in boom periods.

Greater Demands for Sound Corporate Governance and  Transparency 

• Under Sarbanes-Oxley, CEOs and CFOs are required to have internal controls regarding management of corporate pension funds. Indeed, since October of 2004, the SEC has been examining pension plans at six companies with large pension liabilities. 
• The Bush administration wants companies to be required to tell investors and employees well before any pension plan becomes significantly underfunded in order to give interested people a chance to pressure companies to increase the funding.

Greater Exposure to Government Audit and Litigation

• Both the IRS and DOL are increasing the audit of plan operational compliance and monitoring of plan expenses. The IRS has recently introduced a Large Plan Audit Program (over 2,500 employees) that lasts 200-300 days and includes 6-8 IRS auditors.
• The DOL and Pension fund beneficiaries are becoming more inclined to sue pension funds for mismanagement such as investing in companies with sub-par corporate governance.
• Many employee groups have sued their employers for attempting to shift their defined-benefit plans to cash balance plans.

Don’t miss this unique opportunity to listen to renowned authorities discuss the triggers and magnitude of the coming pension fund crisis. Learn about forthcoming policy proposals and how such policies will change the pension funding landscape. Discover the financial, legal and corporate governance issues that will transform the administration and management of pension funds.

Will Pensions Funds Be More Exposed to Financial
 Inadequacy of Legal Liability?

Pension funds are beset with severe underfunding, growing liabilities and greater expenses. For instance: 

• The average pension plan’s funded status at the end of 2003 was only 70%, down from 82.8% in 2000. 
• CFO.com reported that the percentage of employees with fully funded plans plummeted from 84% in 1998 to 37% in 2002.

Also, pension funds are being held to much higher standards in terms of disclosure, compliance, and exposure to litigation.

• Under Sarbanes-Oxley, CEOs and CFOs are required to have internal controls regarding management of corporate pension funds.
• Both the IRS and DOL are increasing the audit of plan operational compliance and monitoring of plan expenses. 
• The DOL and Pension fund beneficiaries are becoming more inclined to sue pension funds for mismanagement such as investing in companies with sub-par corporate governance.
• Many employee groups have sued their employers for attempting to shift their defined-benefit plans to cash balance plans.

Don’t miss this unique opportunity to gain a better understanding of the enormity of the looming pension fund crisis. Determine the controls that must be put in place to ensure to compliance with all applicable laws. Learn what the most successful pension fund administrators are doing to keep their funds solvent and in compliance.

I look forward to meeting you on April 18-19.

David Wanetick
The Wall Street Transcript