Pension Funding and Taxation: Implications for Tomorrow.

• Author: Brizendine, Virginia S.

Washington, DC: Employee Benefits Research Institute Education and Research Fund (EBRI/ERF), 1994. (174 pp)

Reviewed by Virginia S. Brizendine, administrator for the public school retirement system for the State of Missouri and vice chair of the GFOA's Committee on Retirement and Benefits Administration.

Pension plans and pension savings are given tax preferences in the Internal Revenue Code. The loss of revenue from these tax preferences is so large that Congress often asks if retirement systems deserve the tax breaks. The heat of debate when tax bills are considered, however, does not allow time to review the long-term consequences of changes in federal pension-preference tax policy. This book, therefore, presents a series of articles, beginning with discussions of private and public pension systems as they exist today and then reviewing the role that past and current tax policy has played in today's pension structure. It also looks at some proposed changes in tax policy and their long-term consequences.

The book begins with an overview of private and public plans and describes the long-term growth of pension systems, the types of plans and their size, the number and status of covered workers, and the investment of pension assets. The most current data available are presented on 1) the often-discussed trend from a defined-benefit program to a defined-contribution plan for both private and public pension systems; 2) the funding levels of private, state and local, and federal plans; 3) the investment mix of pension plans and the relationship of those investments to the national economy; and 4) individual retirement savings and the behavior of the individuals who receive lump-sum distributions.

The history of federal legislation involving pension plans is traced. Tax policy principles governing qualified plans are presented for defined-benefit plans, defined-contribution plans, the participation of individuals in more than one plan and top-heavy plans. The present tax treatment of contributions by the employer and employee to both retirement systems and special retirement arrangements authorized under the tax code is examined, followed by a review of the tax treatment of distributions from those plans.

The Employee Retirement Income Security Act of 1974 (ERISA) has profoundly changed the funding of private-sector pension plans. A technical discussion of the spectrum of current prefunding approaches provides a background for the other...