Pension Agency Deficit Could Swell Threefold
The federal agency that insures worker pensions could see its deficit balloon to $71 billion in the next decade, but a pair of House chairmen say they believe they can help prevent that crisis.
The Pension Benefit Guaranty Corp., whose liabilities already exceed its assets by $23.3 billion, could see that deficit triple because companies like UAL Corp.’s United Airlines are shedding their pension obligations in Bankruptcy Court, Congress’ top budget analyst said Thursday. At the same time, the premiums businesses pay for the insurance have not kept pace with claims.
Douglas Holtz-Eakin, director of the Congressional Budget Office, told the House Budget Committee on Thursday that current premiums would have to be increased fivefold to cover the projected deficit, which he acknowledged was based on a model for such projections that is still under development.
“PBGC often reports that plans that appeared to be well-funded prior to termination turn out to be deeply underfunded when they are transferred to the agency,” said a statement Holtz-Eakin submitted to the committee.
At the same time as that hearing, Reps. John A. Boehner (R-Ohio) and Bill Thomas (R-Bakersfield) unveiled a bill aimed at shoring up the PBGC while also encouraging employers to maintain their private pension programs.
Boehner, chairman of the House Committee on Education and the Workforce, and Thomas, chairman of the House Ways and Means Committee, said United Airlines’ default on $9 billion in pension commitments last month underscored the need to update the rules governing the plans.
Roughly 34 million people -- about 20% of the nation’s work force -- expect to receive retirement payments from defined-benefit plans.
“Without compliance reform, more companies will default on their plans or simply stop offering plans to their employees, and taxpayers will be at a greater risk of being stuck with a multibillion-dollar bailout of the PBGC,” Boehner said.
Thomas said regulatory changes also are needed to discourage companies from dumping their pension problems on the government. “The PBGC was set up as a last-resort, seldom-used, employer-financed, last resort,” he said.
The Boehner-Thomas bill is similar to a proposal the White House made in January, such as hiking the current insurance premium from $19 per worker to $30, but the congressmen conceded that their proposal was more friendly to business.
Bush administration officials saluted the bill, although Labor Secretary Elaine Chao, who serves as chairwoman of the PBGC, said President Bush is aiming for a bill that eliminates so-called smoothing techniques that let United carry past investment gains and artificially high interest rates on projected future payments so its pension plan appeared stronger than it really was. The House bill would retain some of those techniques.
