Factors Affecting the Growth of Pension Funds

Most experts feel that pension fund growth is likely to slow significantly in future years. One reason is the rising proportion of pension beneficiaries to working contributors, related to the gradual aging of the general population. At the same, the cost of maintaining pension programs has increased dramatically. The full funding of a plan to cover all promised benefits places extreme pressure on corporate profits, while the recent mediocre performance of the stock and bond markets has diminished investment returns.
Even more significant is the rapidly rising cost of government regulation. The employee Retirement Income Security Act (ERISA), Passed by Congress in 1974, imposed costly reporting requirements on the industry and granted employees the right to join a pension program, in most cases, after only one year on the job. More-rapid vesting of benefits was also required so that employees can recover a higher proportion of their past contributions should they decide to retire early or move on to another job. Trying to eliminate the danger that pension may not have adequate funds to pay future claims against them, congress now requires employers to eventually cover any past liabilities not fully covered at present. in addition, a federal agency- the Pension Benefit Guaranty Corporation (PBGC)-was created in 1974 to insure some part of all vested employee benefits. PBGC is supported by premiums contributed annually by participating employers and can borrow up to $100 million from the U.S. Treasury in am emergency.
These new government regulations have forced many private pension plans to close. The controls of other as been turned over to a financial institution- typically a bank trust department or life insurance company- better able to deal with the current rules. Without question, the pension sector faces troubled times and considerable uncertainty in the period ahead