Officials back temporary fix for pension plan troubles

By Brian Tumulty
Gannett News Service

WASHINGTON — The Bush administration said yesterday Congress should act quickly to renew a temporary fix in the financing formula for the nation's financially strapped private pension plans.

Employer-sponsored pension plans now face a record shortfall of $300 billion, according to the federal Pension Benefit Guaranty Corp., which is facing its own financial problems because of a record number of pension plan failures in the past two years.

The agency, which insures pensions up to just less than $44,000 annually at the normal retirement age of 65, recently took over as trustee for US Airways' pension plan for pilots. That added another $600 million in underfinanced liabilities to the agency's balance sheet.

The agency's red ink grew to $5.4 billion at the end of March from $3.6 billion at the Sept. 30 end of the 2002 fiscal year. At the end of the 2001 fiscal year, the agency had a $7.7 billion surplus.

Officials of the agency and Treasury told a House subcommittee yesterday they are considering several legislative options for reducing the pension shortfalls but are not ready to propose legislation.

As a result, the Bush administration favors renewing a two-year fix for the formula used to calculate how much money an employer needs to contribute to its pension plan to keep it fully financed. The temporary fix allows companies to put less money into their pension plans by using a slightly higher projected rate of return on investments. Instead of making their expected investment return the four-year average interest rate for 30-year Treasuries, pension plan sponsors can use 120 percent of that rate.

However, the temporary fix does not address the most significant problems.

Pension shortfalls are concentrated in the automotive industry, which has an estimated shortfall of more than $60 billion, and airlines, with another $26 billion in underfinanced liabilities, according to the government.

In some industries, particularly steel, financially distressed employers can legally promise higher pension benefits even if they don't put in the money, making the government responsible for paying the benefits if the company goes bankrupt or terminates its pension plan.

"Pension sponsors must not make pension promises that they cannot or will not keep," Steven Kandarian, executive director of the Pension Benefit Guaranty Corp., said in prepared testimony. "For example, under current law benefits can be increased as long as the plan is at least 60 percent funded."

Pension plan terminations in the steel and airline industries represent 70 percent of the claims that have been made, Kandarian said, but they cover only 5 percent of workers and retirees with pensions insured by the agency.