With reports of underfunded, frozen or failed pension plans frequently in the news, John Roberts wants to make sure his employees’ plan remains on solid ground.

The senior vice president of human resources at GuideOne Insurance, Roberts said he’s convinced his company’s pension plan is one of the key reasons only 5 percent of its workforce voluntarily left last year, a rate about half the industry average.

“Employees today value pension plans more than ever before,” he said, noting that GuideOne’s defined benefit plan, which is 100 percent funded, is “by far the most expensive employee benefit that we offer.”

More than one-third of the pension assets in the United States, an estimated $4.7 trillion, are invested in private pension plans. Many large employers, however, have struggled to keep their plans fully funded despite a turbulent economy and lower investment returns. Pension plan failures have left the Pension Benefit Guaranty Corp., a federal corporation that ensures that members of failed plans will still receive benefits, at risk as it shoulders the largest liability in its 34-year history.

More than 350 Iowa companies, including some of the state’s largest private employers, still offer defined benefit pension plans, despite a trend away from that type of plan. The PBGC has to date taken responsibility for payments of 39 failed plans in Iowa. Additionally, 44 plans, or more than 12 percent of the active plans in the state, have been frozen by Iowa-based companies, according to 2003 data, the latest figures available.

Meanwhile, the mandatory premiums that companies pay for PBGC coverage increased last month from $19 per employee per year to $30, which is putting additional pressure on some companies to reconsider offering a pension benefit.

In Washington, D.C., a conference committee is now working out differences between the House and Senate versions of pension reform legislation. Officials hope the measure will keep the PBGC, which insures pensions for more than 44 million Americans, solvent, while making defined benefit plans a more attractive option for companies.

“This is a very thorny issue,” Roberts said. “You want companies to step up and fund their plans, but you don’t want them to say, ‘This is too expensive; we need to freeze the plan.’ I appreciate the balancing act Congress has in addressing these issues.”

The Pension Protection Act, passed by the House in December, establishes new funding rules and disclosure requirements for defined benefit plans, imposes benefit restrictions on underfunded pension plans and increases the premiums plan sponsors pay to the PBGC. The Senate’s bill, the Pension Security and Transparency Act,was passed in November.

Rick Lawson, vice president of federal government relations for Principal Financial Group Inc., has followed the legislation on Capitol Hill. He said he’s hopeful the conference committee will be able to reach an agreement within the next month. Principal, which provides services to 1,059 private pension plans across the country, has lobbied for a provision that would create a hybrid of defined benefit and 401(k) plans known as a DBK. That option, which Principal has been formulating for the past six years, would eliminate regulatory hurdles that prevent many smaller companies from setting up pension plans by allowing them to combine a pension plan and 401(k) plan under a single plan document rather than two.

Encouraging more use of employer-sponsored pension plans has never been more important, Lawson said.

“We’re in a negative savings rate for the first time since the Great Depression,” he said. “We’re not doing a good job of saving on our own. The average American spends $1.22 for every dollar they earn.”

Lawson said he’s hopeful Principal’s DBK product, which it developed in conjunction with the American Society of Pension Professionals & Actuaries, will “generate excitement about employers putting (pension) plans into place. Hopefully, now that we’re within striking distance of getting this enacted into law, more companies will begin taking a look at the DBK provisions.”

Though defined benefit plans were once the predominant private-sector retirement vehicle, their numbers have steadily declined over the past two decades as companies have shifted to defined contribution plans. According to data from the Employee Benefit Research Institute, a non-partisan, non-profit policy research organization, about 61 percent of private-sector retirement assets are now held in defined contribution plans, principally 401(k) plans, compared with 39 percent in defined benefit pensions.

The record-low interest rates of the past few years have put additional pressure on companies, as the investment income needed to fund the plans has lagged. That trend has resulted in many companies underfunding their plans, while many others have been frozen.

According to a study released in December by the PBGC, 9.4 percent of the more than 31,000 private-sector defined benefit pension plans it covered were frozen as of 2003. However, the study also estimated that the frozen plans affected only 2.5 percent of workers with pensions, because the most of the frozen plans were small.

When a company freezes a plan, it means no new employees can enter the plan after the freeze date, and no further benefits accrue after the freeze date. However, those employees already covered by the plan must still be paid according to the plan’s provisions.

A separate study conducted by Watson Wyatt Worldwide, a human resources consulting firm, found that about half of Fortune 1000 companies that froze or terminated their plans drop off the list the following year, indicating the decision may have been driven by weak financial performance.

A decision by AmerUs Group to freeze its pension plan in 1995 and replace it with a 401(k) plan was a response to employee focus group results, said Laurie Roepsch, the company’s benefits director.

“We found that the majority of employees did not really understand what the plan provided and did not see how it fit into their financial planning,” she said. The enhanced 401(k) plan included an increase in the company’s matching contributions on employees’ pre-tax contribution, from 100 percent of the first 3 percent deferred to 125 percent of the first 4 percent deferred. It also funded an additional annual contribution to each employee’s account equal to 4 percent of the employee’s total compensation.

“The plan is portable, which is a better fit for most employees’ needs,” Roepsch said. “Secondly, employees now understand what goes into their 401(k); they can easily view their personal account balance and now are able to control the contributions and investments to meet their personal financial goals.”

Jim Brannen, vice president of finance for FBL Financial Group Inc., said a challenge for employer has been “trying to figure out how get from defined benefit to defined contribution plans.”

Farm Bureau Mutual Insurance Co., a company managed by FBL but owned by its policyholders, is among the Iowa companies that has frozen its plan. However, that plan involved a small number of employees and is not part of the company’s main pension plan, Brannen said.

“We have not frozen our plan, but we continue to monitor (the trends),” he said. “For companies in the financial services industry, there really hasn’t been a trend toward defined benefit plans being frozen. They’re still more heavily involved in the defined benefit plans. We have moved to more of a mix where we also have the defined contribution (401(k)) plan.”

According to the Watson Wyatt study, the financial services industry had the highest funding rate for pensions, with an average of 99 percent. The transportation industry sector, which includes airlines, had the lowest average funding ratio, at just under 70 percent.

Lawson said the companies whose plans Principal administers tend to be small to medium in size, financially solid and have well-funded plans. The average funded status among its plans in 2004 was 85 percent.

“In our market, we feel very good; we’re well funded by and large,” he said. “We’re just not seeing some of the issues we’re seeing in the older plans.”

The funding provisions in the legislation now before Congress should put more predictability into the interest rate formulas that companies are required to use to determine how their plans are funded, Lawson said.

“The reason this bill came into being was to try to put the predictability into the system, and hopefully, encourage those who are in (defined benefit plans) to stay in,” he said. “By having this predictability, it will make it more attractive to set up such a plan.”