Congress may set some minimum standards for private pension plans
Boston — Do public pension systems need federal regulation?
Congress is considering a bill that presumes the answer is yes. The proposed Public Employee Pension Plan Reporting and Accountability Act (PEPPRA) wants to eliminate deficiencies in the way pension information is reported and disclosed to plan participants, public officials, and taxpayers.
The objective of PEPPRA is to establish minimum reporting, disclosure, and fiduciary standards for state and local government pension plans.
A heated debate over the necessity of PEPPRA has stalled it through three congressional sessions. State and local government officials oppose the legislation. They don't think federal regulation is necessary, and they consider the bill an intrusion into state and local affairs. Supporters of PEPPRA - including many pension experts, public employee groups, unions, consumers, retirees, and taxpayers - argue that reporting and disclosure deficiencies are abundant.
Cathy Eitelberg, a legal associate with the federal liason center of the Municipal Finance Officers Association, says: ''We don't feel the federal government should have the right to dictate these standards. It's an administrative burden to pension plans who already meet standards of the bill, and it would be expensive.''
PEPPRA is divided into two bills with similar provisions. Title 1 requires a summary description and an annual report of each public pension plan, and also requires that participants be informed about benefits. Title 2 states that fiduciaries must act only in the interest of participants and beneficiaries to provide benefits and defray expenses. Title 3 gives access to federal courts.
''They are calling the kettle black, and are not taking care of their own problems,'' says Rusty Jesser, a legal assistant to Representative Larry Craig (R) of Idaho. ''Unfunded liabilities of the federal pension system exceed a trillion dollars. It's more than the national debt, and is growing faster than it. They are pulling out $18,000 a minute more than (they are) putting in.''
The Employee Retirement Income Security Act (ERISA) called for a congressional study of over 6,000 state and local pension plans. It found that serious deficiencies existed in reporting, disclosure, and fiduciary standards (officials are supposed to invest funds carefully in the interest of beneficiaries and no one else). The conclusion was that federal regulation was necessary.
A 1980 survey by the Municipal Finance Officers Association explained the plans as ''inadequate and confused and clearly in need of repair.'' John Petersen, the author of the report, said the major source of the problem was an absence of basic authoritative standards and a lack of enforcement of standards that already exist.
In contrast, a 1979 survey by the Advisory Commission on Intergovernmental Relations, with the help of the National Conference of State Legislatures, found that ''reporting and disclosure requirements of the states were comprehensive for the large state-administered systems which cover most public employees.''
Although it suggested that there was movement toward pension reform, the study didn't explore the quality of information included in reports to state and local governments.
Alicia Munnell, a vice-president and economist at the Federal Reserve Bank of Boston, and Kristine Keefe, a senior research assistant at the bank, recently published a report on the penison plans of the New England states. They found that many state plan administrators were not able to give specific information of the local plans used in their states. This was considered especially apparent in Connecticut.
Measured by the PEPPRA proposals, all of the New England states' financial statements would be deficient. Plan assets would have to be reported at market value as well as book value (the price paid for the assets). Historical data on the assets' market value would also be required. More explanatory information or ''fiscal notes'' would be needed, because substantial discrepancies appear in yearly figures without explanation. New England states, except Massachusetts, are required to audit annually. However, these reports aren't included in the financial statement. This apparently makes it difficult to tell whether financial information and accounting principles coincide.
Speaking of the proposed federal legislation, Mr. Jesser says,''It would create new regulations and millions of dollars in new-staff and paper-work requirements.''
Mrs. Munnell says:'' If everyone were doing everything correctly, there would be no need for the legislation. I don't think anyone wants to be responsible to show pension assets at market value. As soon as they do, it can be seen how well you have been investing. People (pension fund managers) don't like that.''
A member of the House Education and Labor Committee staff says: ''People have been saying the states will begin doing this on their own. Our committee feels great potential for use of deferred wages for purposes other than retirement benefits. Given restraints on state and local governments, the temptation is greater and greater to use funds elsewhere.''
The staff member said it is unlikely something will happen with PEPPRA during the coming lame-duck session of the 97th Congress, because of the full schedule of the Ways and Means Committee. But she said she hoped it would pass in 1983. The Reagan administration has not taken a position on the proposed legislation.