Pension plans defer compensation from working years to retirement years. There are two major types of pension plans. A defined benefit plan specifies a formula for computing benefits payable at retirement based on age, length of plan participation, and earnings history. A defined contribution plan provides a framework within which the employer and/or employees contribute to individual worker accounts. The balance in this account at retirement, reflecting contributions plus investment income, constitutes the source of retirement benefits from a defined contribution plan. Put simply, a defined benefit plan specifies benefits, and a defined contribution plan specifies contributions. The Employee Retirement Income Security Act (ERISA) of 1974 requires annual financial and actuarial reporting by most private pension plans. Public Law 95-595, 31 U.S.C. 9501-9504, enacted on November 4, 1978, extended financial and actuarial reporting requirements to federal government pension plans. The Comptroller General and the Office of Management and Budget (OMB) jointly prescribe the form and content of the annual pension plan reports under Public Law 95-595. The reports are due 210 days after the last day of each plan’s fiscal year and are to be sent to the Congress and the General Accounting Office. Public Law 95-595 defines the term “government pension plan” to mean a pension, annuity, retirement, or similar plan established or maintained by an agency for any of its officers or employees, regardless of the number of participants. The plans subject to Public Law 95-595 fall into three general categories: agency plans, nonappropriated fund activity plans, and federal reserve and farm credit plans. Agency plans cover employees of executive, legislative, and judicial organizations that are generally recognized as agencies and are generally funded by annual appropriations. Nonappropriated fund activity plans cover employees of organizations, such as post exchanges and commissaries, that provide morale, welfare, and recreation services to military components. In large part, these organizations are designed to be self-sufficient and operate with revenues generated from their activities. Finally, the federal reserve and farm credit plans cover employees of federal reserve and farm credit system entities, which also operate with revenues generated from their activities. The agencies, nonappropriated fund activities, and federal reserve and farm credit entities offer 34 defined benefit pension plans, which cover more than 10 million current employees, separated employees entitled to benefits, and retirees. Fifteen of the 34 defined benefit plans are agency plans. Nonappropriated fund activities and federal reserve and farm credit entities operate the other 19. Specifically, nonappropriated fund activities have 8 defined benefit plans for civilian employees who provide services to the Army, Navy, Air Force, Marines, and Coast Guard; the Federal Reserve System has a defined benefit plan for employees of the federal reserve banks and the Board of Governors; and the Farm Credit Systemhas 10 defined benefit plans for employees of the various district banks. Approximately 5.8 million active employees participate in the 34 federal government defined benefit plans. In addition, the plans provide benefits to 4.1 million annuitants, and another 119,000 separated employees are entitled to deferred retirement benefits. The defined benefit plans range in number of participants from the Civil Service Retirement and Disability Fund (CSRDF), with 5.2 million participants, to several plans which have fewer than 25 participants. Participants in the two largest plans, CSRDF and the Military Retirement System, constitute 97 percent of participants in the 34 federal defined benefit plans. CSRDF consists of the Civil Service Retirement System (CSRS) and the Federal Employees’ Retirement System (FERS). The Congress closed CSRS to new participants at the end of 1983, and employees hired since 1983 generally are covered by FERS. Appendix III, table 1, lists the number of participants for each of the defined benefit plans. The federal government also offers defined contribution plans, generally to supplement the deferred compensation employees earn under defined benefit plans. According to the most recent pension plan filings, 2.2 million individuals participate in 17 defined contribution plans sponsored by agencies, nonappropriated fund activities, and federal reserve and farm credit entities. The largest federal defined contribution plan is the Thrift Savings Plan, which has 2.1 million participants, or 97 percent of the participants enrolled in federal government defined contribution plans. Appendix III, table 5, lists the number of participants for each of the defined contribution plans. The vast majority of defined benefit plans sponsored by the federal government offer retirement, survivor, and disability benefits to their participants. As of the most recent plan filings, participants in the 34 defined benefit plans had accumulated more than $1.2 trillion in total retirement benefits, the vast majority in the 15 agency plans. The various federal government plans provide significantly different retirement benefits to their members, depending on factors such as age and salary at retirement, years of service, election of survivor annuities, and cost-of-living adjustments. In addition, some defined benefit plans are supplemented with defined contribution plans and Social Security benefits, and others are not. Certain defined benefit plans provide different levels of benefits for different employee groups. A general description of basic retirement benefits for each of the federal defined benefit plans is provided in the plan profiles in appendix I. These descriptions provide general information only and do not include details for determining or comparing actual benefit amounts. Actual benefit amounts for individual defined benefit plan participants may differ significantly as a result of early retirement, disability benefits, survivor benefit elections, and other factors applicable to specific circumstances. The majority of federal government defined contribution plans provide employer matches to employee contributions. Contribution percentages for each of the defined contribution plans are listed in the plan profiles in appendix II and are summarized in appendix III, table 5. Differences exist in the funding of federal government defined benefit plans. Of these 34 plans, 28 use trust funds, while 6 of the agency plans are referred to as pay-as-you-go plans. Trust funds are separate accounting entities established to account for government and employee contributions, investments, and benefits paid. The pay-as-you-go plans do not have trust funds to accumulate assets to pay plan benefits. For these six plans, benefits are paid to annuitants from appropriations in the year in which the benefits are due. Trust funds for agency defined benefit plans, with the exception of the Tennessee Valley Authority (TVA), invest in special issue Treasury securities, which are nonmarketable. The primary purpose of the trust funds is not to provide a source of cash for the government to pay benefits, but to provide budget authority to allow the Treasury to disburse monthly annuity checks without annual appropriations. Because these securities represent assets of the trust funds and offsetting liabilities of the Treasury, under accounting procedures, the trust fund assets are eliminated in the governmentwide financial statements. Accordingly, these trust fund assets are not included in the governmentwide financial statements, which include the federal government’s $1.2 trillion liability for the benefit obligations of the 15 agency plans. The defined benefit plans of the nonappropriated fund activities and federal reserve and farm credit entities, as well as TVA, use trust funds to set aside money or marketable assets during employees’ working years for the accruing cost of their retirement benefits. A defined benefit pension plan’s status as fully funded or underfunded is determined by comparing its net assets to the actuarial present value of its benefit obligations. The agency defined benefit plans generally are underfunded—that is, the present value of benefit obligations exceeds plan assets. As discussed more fully in the retirement system financing section below, statutory provisions are in place for the future elimination of the unfunded benefit obligations of CSRS and the Military Retirement System. A principal effect of not fully funding most agency pension plans is that agencies’ budgets have not included the full cost of the pensions. Because contributions to most agency plans, under applicable requirements, have covered less than the full accruing cost of retirement benefits to covered employees, the agencies’ budgets have not reflected the full cost of government programs. The defined benefit plans of the nonappropriated fund activities and the federal reserve and farm credit entities, as well as TVA, have generally contributed amounts sufficient to set aside money or marketable assets in trust funds to fully fund their estimated accumulated benefit obligations. One measure of a defined benefit pension plan’s obligation for benefits is represented by the present value of accrued benefits. This actuarial measure is referred to as the Accumulated Benefit Obligation. It applies to private sector defined benefit plans in accordance with Statement of Financial Accounting Standards No. 35 and also was used in the federal government’s prototype governmentwide financial statements for fiscal year 1993. It reflects all accrued benefits due under the plan as if the entity ceased as a going concern. The Accumulated Benefit Obligation is a “static” measure because it does not consider anticipated pay increases, cost-of-living adjustments, or future contributions. Another measure of benefit obligations is represented by the present value of future benefits, net of the present value of future normal cost contributions. This actuarial measure is referred to as the Actuarial Accrued Liability. It is a “dynamic” measure because it considers estimated future service and salary changes, as well as the present value of future normal cost contributions. The Federal Accounting Standards Advisory Board issued an exposure draft entitled Accounting for Liabilities of the Federal Government (November 7, 1994). Its provisions would require that the Actuarial Accrued Liability of federal government defined benefit plans be reflected in federal government financial statements. For the most recent plan filings, 21 of the 34 federal government defined benefit plans—3 of the 15 agency plans and 18 of the 19 plans sponsored by the nonappropriated fund activities and federal reserve and farm credit entities—were fully funded under the static Accumulated Benefit Obligation measure. Those filings also indicate that 15 of the 34 plans—5 agency plans and 10 others—were fully funded under the dynamic Actuarial Accrued Liability measure.