30 Million Pensions Upheld : Court Backs Protection of Payments
The Supreme Court today spared the federal program protecting the pensions of 30 million American workers from a potential financial crisis.
By an 8-1 vote, the court broadened the authority of the Pension Benefit Guaranty Corp. to order employers to restore terminated pension plans.
A federal appeals court limited such authority last year by setting aside the agency’s order that LTV Corp. and its subsidiary, LTV Steel Co., restore three pension plans with unfunded liabilities of $2.3 billion. Today’s decision reversed the appeals court ruling.
Government lawyers told the justices that the appeals court ruling, if not overturned, “could lead to a financial crisis similar to that currently facing” the government insurance program for the savings and loan industry.
At issue was the agency’s power to shift liability for pension payments back to an employer in what is called an “anti-follow-on policy.”
Writing for the court, Justice Harry A. Blackmun said the policy “is not contrary to clear congressional intent and is based on a permissible construction” of federal law.
The Pension Benefit Guaranty Corp., modeled after the Federal Deposit Insurance Corp. and the Federal Savings and Loan Insurance Corp., is wholly owned by the federal government.
The agency protects the pension benefits of the 30 million workers who participate in single-employer pension plans.
When a pension plan is ended with insufficient money to satisfy promised benefits, the agency becomes the pension plan’s trustee, taking over its assets and liabilities. The agency then pays--with taxpayer money--benefits workers had earned as of the date the pension plan ended.
The Pension Benefit Guaranty Corp. paid $324.7 million in insured benefits in fiscal year 1988 to 113,000 retirees who participated in 1,476 terminated pension plans.
The cost of the pension insurance is paid primarily by employers with active pension plans and by employers who terminate under-funded pension plans.
But the Pension Benefit Guaranty Corp. has money problems of its own--a $1-billion deficit. It lists assets of about $3.2 billion and liabilities of about $4.2 billion.
The agency’s executive director, James B. Lockhart, told a congressional subcommittee last week that the agency soon could be unable to meet its obligations.
The Dallas-based LTV and its Cleveland-based LTV Steel subsidiary, after filing for reorganization under federal bankruptcy law in 1986, advised the PBGC that they could not fund the three pension plans they sponsored. The plans were ended in 1987.
In a deal with the United Steelworkers union, however, LTV Steel agreed to what government lawyers contended is a “follow-on” arrangement. Under it, LTV agreed to make up any benefits lost to retirees because of the pension plan’s termination--those benefits not covered by the federal pension insurance program.
The result: Retirees continued to receive the same benefits they did before the plans were terminated, and payment of under-funded pension liabilities was shifted to the Pension Benefit Guaranty Corp.
