Congress asked to step in as pension insurer's bill grows
By MARILYN <mailto:mgeewax@ajc.com> GEEWAX The Atlanta Journal-Constitution Published on: 11/15/04
WASHINGTON - The agency protecting pensions of more than 44 million Americans Monday reported a deficit of $23.3 billion, more than double last year's record-shattering $11.2 billion shortfall.
The Pension Benefit Guaranty Corp. said that as of Sept. 30 - the end of fiscal 2004 - it had just $39 billion in assets to cover $62.3 billion in obligations to retirees.
The agency said it can cover pension payouts for several years to more than
1 million people whose former employers defaulted on plans.
But "with more than $62 billion in liabilities, it is imperative that Congress act expeditiously so that the problem doesn't spiral out of control," PBGC Executive Director Bradley Belt said in a statement.
Congress created the PBGC in 1974 to serve as an insurance agency for private pension plans. Employers must set aside pension funds, which can be invested. They also must pay insurance premiums to PBGC. If a pension plan sponsor defaults, the agency makes good on promised benefits, up to certain limits.
During the 1990s stock market rise, pension funds grew. But after 2000, when stocks and interest rates plunged, the flow of cash into pension plans tumbled.
At the same time, the PBGC began to absorb pension obligations of scores of insolvent companies, including major steel makers, textile companies and airlines.
In its latest report, the agency said it got hit in 2004 with a $14.7 billion loss from "completed and probable" pension plan terminations. PBGC did not name the companies with "probable" defaults, but it did say its largest exposure came from manufacturing, transportation, communications and utilities industries.
Just this month, both UAL Corp.'s United Airlines, the country's second-largest airline, and US Airways Group Inc., the seventh largest, requested bankruptcy court permission to terminate pension plans unless workers agree to big changes in them.
PBGC said that termination of United's pension plan would add $6.4 billion to its liabilities. If US Airways were to drop its three remaining pension plans, that would add an additional $2.1 billion.
Some lawmakers fear parallels between PBGC's shaky finances and the savings and loan crisis. Between 1986 and 1995, 1,043 thrifts failed, overwhelming resources of the Federal Savings and Loan Insurance Corp. Taxpayers had to back up commitments, and by the end of 1999, the crisis had cost them roughly $124 billion.
Technically, taxpayers would not be on the hook if PBGC were to default. But politically, it would be difficult for Congress to abandon millions of retirees.
Sen. Chuck Grassley (R-Iowa), chairman of the Senate Finance Committee, issued a statement saying he is "very concerned" about PBGC.
"We have to do everything we can to avoid a taxpayer bailout of the agency,"
Grassley said. He promised his committee would "coordinate its efforts with officials at the PBGC" to figure out reforms.
Last month, Belt told senators that Congress should let his agency enforce bankruptcy court liens against companies that miss pension payments. PBGC also wants to require any company entering bankruptcy court to inform employees about its pension plan status.
James Klein, president of the American Benefits Council, which represents pension plan sponsors, said in a statement that the PBGC report represents a "firm call" for the newly elected 109th Congress to make sure employers meet their obligations.
"This is a long-term problem that cannot be ignored," he said. "Funding rules need to be strengthened."
