U.S. Pension Agency Data Hint at Bailout
The federal agency that backstops the retirement plans of more than 45 million American workers reported a record $11.2-billion deficit Thursday, reinforcing concerns that the program may require a taxpayer bailout.
The Pension Benefit Guaranty Corp.’s deficit at the end of fiscal 2003 was more than triple the $3.6-billion shortfall of a year earlier.
“The growing gap between our assets and liabilities puts at risk the agency’s ability to continue to protect pensions in the future,” said Steven Kandarian, the agency’s executive director, though “the PBGC has sufficient assets to pay benefits to workers and retirees for a number of years.”
The PBGC, which reported a net surplus of $7.7 billion in 2001, was created in 1974 to guarantee that workers covered by traditional corporate pension plans receive at least some benefits if their employers go bankrupt and can no longer fund their retirement plans. The agency is financed by insurance premiums paid by companies that sponsor pension plans and by PBGC’s investment returns.
The three-year bear market on Wall Street and the lowest interest rates in 40 years took a toll on the agency’s financial reserves and also hammered many corporate pension plans. In addition, bankruptcies in the airline and steel industries contributed to the agency’s $7.6-billion loss last year.
All told, the agency said it recorded net assets of $34 billion as of Sept. 30, the end of fiscal 2003, versus liabilities of more than $45 billion.
Although existing payments to pensioners are not at risk, the rising tide of red ink at the agency raises the specter of a taxpayer bailout, officials said, unless Congress acts to require companies to pay more to the agency.
Congressional leaders have pledged to put pension reform at the top of the legislative agenda, and the Treasury Department is planning to introduce its own pension-reform plan in coming weeks.
However, pension reform has proved to be a contentious issue in the past. A series of pension-reform bills died late last year after partisan bickering and heavy lobbying by industry, which maintained that some of the measures would cause more problems than they would solve.
Industry leaders were already blasting the higher payments that Kandarian is recommending, saying they could push dozens of companies with teetering plans over the edge.
“The worst thing lawmakers could do would be to enact legislation that makes the termination of seriously underfunded plans a self-fulfilling prophesy,” said James A. Klein, president of the American Benefits Council, a Washington group that represents many of the nation’s largest employers.
“Any effort to impose unduly burdensome new funding rules on plans could unintentionally backfire and make it impossible for those sponsoring companies to continue their plans.”
Added Steve Kerstein, managing director of the global retirement practice at Towers Perrin: “Do we need funding reform? Absolutely. Do we need to get contributions in to improve funding levels? No question. But we need to find a formula for funding reform that companies can afford.”
The agency, which is paying monthly pension benefits to 459,000 retirees, has been on a government watch list for high-risk programs since last summer, when a General Accounting Office report said structural problems within the traditional corporate pension system were jeopardizing the agency’s health.
In addition to losses already incurred, the PBGC calculates “reasonably possible” exposure, an estimate of the amount of vested benefits in pension plans sponsored by financially weak employers.
The agency estimates that its potential exposure is $85.5 billion, nearly 2 1/2 times as high as the previous year’s estimate of $35.4 billion. Two industries -- airlines and metals, which includes steel makers -- account for nearly 40% of that total.
