Fund Chief Warns of Pension Crisis
Warning that a crisis is brewing, the federal agency that insures pensions reported Monday that 50 big U.S. companies have promised--but have not set aside money to pay for--nearly $21.5 billion worth of pension payments. The size of the funding gap has jumped by more than 50% in the past year.
“We must stem the increase in pension under-funding before we have a crisis,” said James B. Lockhart, executive director of the Pension Benefit Guaranty Corp. “If companies do not pay the pensions they promise, and PBGC cannot fulfill its obligations, retirees will be at risk and taxpayers may end up paying for promises they did not make.”
The PBGC insures basic pension payments to 40 million workers up to $2,250 a month. The agency has been supported by insurance premiums from the 97,000 corporate pension plans that it insures, but Lockhart warns that a taxpayer bailout of the insurance fund may be needed if the recession worsens and more companies dump pension obligations onto the agency, which had $3.3 billion in assets at the end of last year.
Meanwhile Monday, a federal judge approved the pension agency’s takeover, effective last July 31, of Pan Am Corp.’s under-funded pension plans. The date limits benefits to certain Pan Am employees.
The companies with the biggest unfunded liabilities are General Motors Corp., Chrysler Corp. and LTV Corp. Only LTV, however, poses an immediate threat, as it is in bankruptcy proceedings and its pension funds have assets of only $204 million, compared with $3.4 billion in benefit promises guaranteed by the federal government.
GM has assets of nearly $35 billion in its pension funds to pay for $42 billion in pension promises, leaving it $7.1 billion short. A big part of that shortfall, however, is made up of promises that the auto maker made in union contracts that, by law, the company has 18 years to fully fund.
Chrysler, meanwhile, has $5 billion in assets in its pension plan, but has made $8.4 billion in pension promises. It recently contributed stock in lieu of cash to its pension plan.
Other companies with big unfunded pension liabilities include New York-based Loews Corp., with only $101 million in assets to cover $239 million in pension promises, Paine Webber Group, with $78 million in assets to cover $125 million, and Trans World Airlines, with $1.1 billion in assets covering $1.3 billion.
This is the third year the pension agency has reported on the 50 biggest under-funded plans, a list its critics call the “Iffy Fifty” because the agency lists shortfalls as if the companies were to file bankruptcy immediately and dump all their pension obligations.
Some of the big companies that the PBGC says pose risks to the insurance fund were allowed to skim “excess” cash out of their pension funds in the 1980s.
TWA Chairman Carl Icahn plans a quick bankruptcy reorganization of his debt-ridden airline in January, but PBGC negotiators are afraid that the agency will be stuck with the pension liabilities.
