Pension insurer designated 'high risk'
By Harriet Johnson Brackey
Knight Ridder News Service
A pension crisis — which is inviting comparisons to the massive savings and loan industry bailout of the late 1980s — is coming to the forefront in Washington.
Yesterday, congressional investigators designated the government-sponsored program that insures the pensions of 44 million private-sector workers as "high risk."
The Pension Benefit Guarantee Corp. is running the highest deficit in the program's 29-year history. The Bush administration pointed out that this means the nation's private pension system needs major reforms.
As for the PBGC, "I don't see a taxpayer bailout," Assistant Secretary of Labor Ann Combs said in a telephone interview yesterday. However, "As (Treasury) Secretary (John) Snow has said and others, we've got some problems there that make us nervous, that look not unlike the S&L crisis."
The PBGC has suffered a dramatic $15 billion downturn in its financial health since 2000, moving from a $9.7 billion surplus three years ago to a $5.4 billion deficit by April. The reason is a surge in pension plan terminations, in which private companies that can't meet their pension obligations end their plans and turn over their pension assets to the PBGC. The PBGC then continues paying retirees.
Executive director Steven A. Kandarian told Congress in April that the PBGC will be responsible for paying almost $2.5 billion in benefits this fiscal year, up from $1.5 billion last year.
The program is not paid for by federal tax revenues. Its money comes primarily from insurance premiums paid by employers who have pension plans.
At its current rate of financing, "It would take about 12 years of premiums to cover just the claims from 2002," Kandarian told a House subcommittee hearing.
The PBGC is paying 783,000 retirees from Eastern Airlines, Pan Am, Bethlehem Steel, Consolidated Freightways, Polaroid, Trans World Airlines and numerous others. Many, however, are not receiving all of the retirement income they expected. Highly compensated employees won't get generous payments, because PBGC benefits are capped at $43,977 a year.
The PBGC sees more trouble brewing, with an estimated $300 billion in underfunded pensions among the nation's corporations as of April.
"In addition, the PBGC has significant exposure in industries that are affected by increasing global competition and the move from an industrial to a knowledge-based economy," Comptroller General David M. Walker, who heads the General Accounting Office, said in a statement yesterday.
The "high-risk" designation puts the PBGC in the same category as 25 other government programs, including Medicare and Medicaid.
As a result, the PBGC will be receiving extra scrutiny from the General Accounting Office, an arm of Congress.
Rep. John Boehner, R-Ohio, chairman of the House Education and Workforce Committee, plans to hold a hearing on the PBGC's fiscal health in September.
On the other hand, the "high-risk" designation is not a sign that the PBGC is about to run out of money, Combs said.
"People who are getting benefits will be paid. These liabilities are over the long term," she said.
