In September of this year, the Pension Benefit Guaranty Corporation (PBGC), the federal agency that insures the pension benefits of private defined benefit pension plans, issued its annual report covering activity calendar year 2000. That report discussed that in spite of the negative stock market returns in the year 2000, defined benefit pension plans--and particularly union-sponsored multiemployer plans--are in exceedingly sound shape.

This report stands in sharp contrast to two private studies of 401(k) plans that were reviewed by The New York Times in July of this year which showed that poor investment decisions made by 401(k) participants in calendar year 2000 produced the first declines in 401(k) account balances in their 20-year history.

The PBGC on an annual basis reviews a variety of key measures of the defined benefit pension plans it insures. There is no government insurance for defined contribution plans such as 401(k) plans, so the PBGC does not track their performance. Within the defined benefit plan arena, the PBGC separately evaluates single employer plans and multiemployer plans. Single employer plans are sponsored only by employers, while multiemployer plans may only be created jointly by employers with union sponsorship. All pension plans maintained by IUOE Local Unions, as well as the Central Pension Fund, are multiemployer plans.

The PBGC report showed that in 2000, the number of participants in multiemployer plans continued to grow, the funding level of the plans remained essentially unchanged and there were no multiemployer plan terminations resulting in any loss of benefits. Indeed, in the more than 25 years of the PBGC's existence, there have been only a handful of such terminations.

The relative strength of union-sponsored multiemployer plans is highlighted by the PBGC's report that in the year 2000, the agency paid insured benefits to 226,000 participants in single employer plans that have terminated since 1975, while it paid such benefits to a total of 626 participants from all multiemployer plans in the United States.

In sharp contrast to the PBGC report showing the health of union-sponsored pension plans, in July of this year The New York Times provided an in-depth analysis of two independent studies that both presented alarming reports on the health of 401(k) retirement savings plans.

The Times reported that in 2000 the average account balance in all 401(k) accounts had shrunk by more than 10%--in spite of the fact that participants continued to make additional contributions of 7% of pay throughout the year. This was the first decline in account balances in the 20-year history of 401(k) plans.

The Times report concluded that this precipitous loss was not attributable to the decline in the U.S. stock market so much as it was attributable to the poor investment decisions of 401(k) participants themselves. The Times found support for that conclusion in recent reports by two organizations with special interest in retirement plans. The first organization, the Employee Benefit Research Institute (EBRI), found that in 1999 the average 401(k) account was invested 72% in stocks. The second organization, Fidelity Investments--the largest provider of 401(k) accounts in the United States, found even more alarmingly that their average 401(k) account was invested 62% in stock mutual funds plus 19% in the company stock of the participants' employers.

These percentages were compared by the Times to what it identified as the "classic" allocation of professional pension plan managers of 60% stocks and 40% bonds--which is also the current allocation maintained by the Central Pension Fund.

While 401(k) participants were rewarded for such unwise over reliance on stocks in the late 1990s as the technology bubble expanded in this country, they were punished in the year 2000 when that bubble burst.

The contrast between the PBGC report and The New York Times report once again emphasizes the security of traditional defined benefit union-sponsored pension plans compared to the risk of individual 401(k) retirement accounts, and reaffirms that 401(k) plans are suitable as supplements to--but never substitutes for--real defined benefit plan retirement security.