Federal Pension Provider Overwhelmed By Kirstin Downey Washington Post Staff Writer Wednesday, July 2, 2003; Page E01
Based on what they describe as their own rocky experiences, retirees Dale "Bud" Leppard and Richie Brooks view with apprehension the growing workload of the Pension Benefit Guaranty Corp., the federal agency charged with ensuring that workers from bankrupt companies get their pensions. Leppard, of Morristown, N.J., lost his pilot's job at age 54 when Eastern Air Lines Inc. failed in 1991. Because he started drawing benefits right away, he learned he would get only one-fourth of the $6,000-a-month pension he was expecting at age 60. Then, three years ago, the PBGC told him it had overpaid him for nine years and wanted $36,000 back. So he reluctantly agreed to fork over $140 a month from his $16,661 annual pension -- a payment he will make until he turns 80 in 2017. Brooks, 59, of Lake Worth, Fla., a machinist at Pan American World Airways Inc., which stopped flying in 1991, is part of a group of Pan Am employees suing the agency to get more pension money. "We're not trying to get rid of the PBGC," Brooks said. "I wouldn't get my $263 a month if they weren't there." He thinks he and other beneficiaries are getting shortchanged because the agency is acting too much like a business trying to control costs rather than a government protector of retirees. The PBGC serves as financial trustee for nearly 1 million individual pensioners -- up from 346,000 in 1993 -- and pays out $2.5 billion a year. It expects more customers by next year and has already inherited more than 100,000 new customers in the past six months, including 95,000 from Bethlehem Steel Corp., 20,000 of whom are in the Washington-Baltimore region; 7,000 pilots from US Airways Inc.; and 1,004 health care workers from Columbia Hospital for Women in the District. Some are already disappointed by administrative delays and rules that limit their pensions. Advocates for retirees and agency officials defend the PBGC, saying the agency is performing admirably overall at a time when the nation's pension corporate system is under severe stress amid a sagging stock market, with underfunding now about $35 billion. Forced to take over a record number of bankrupt pension plans, most notably in the steel and aviation industries, the agency now faces a $5.4 billion deficit, the largest in its history. "The PBGC by and large is a good system, and it saves people for the most part," said John Hotz, deputy director of the nonprofit Pension Rights Center. "But like everything in pension law, it's incredibly complicated, and there are lots of little wrinkles that can have a negative effect on folks." Set up in 1974 after Studebaker's failure left some retirees destitute, the agency operates under complex guidelines designed to maximize the number of people covered when their employers' plans go broke. The pension insurer has about 850 employees and even more contract workers and is supported by fees paid by companies that operate pension plans. Generally speaking, workers who retire at age 60 face a statutory pension limit of $28,600 a year, while those who retire at 65 are limited to pensions of about $44,000. The average 65-year-old retiree in the United States gets a pension of about $12,000 a year. According to the PBGC, which covers about 44 million Americans, working and retired, 90 percent of its recipients, including everyone at Columbia Hospital for Women, will get the full amount they were promised. Meanwhile, workers who have only 401(k)s, or other plans that require them to invest on their own behalf, are not insured by the government program and thus have no guarantee of benefits at all -- as chagrined workers from Enron Corp. and other corporate giants discovered. Airline veterans Leppard and Brooks aren't the only ones asking for more from the PBGC. Hundreds of LTV Corp.'s steelworkers in the Cleveland area took early retirement in early 2002 under company pension rules when the steel plant shut down, and then they learned their pensions would be reduced by the agency. In the Washington area, pilots at US Airways, which emerged from bankruptcy protection this spring, have protested reductions in their retirement benefits and the loss of lump-sum retirement packages they had counted on receiving. One common complaint by PBGC-covered workers is a delay in learning what their payments will be. Recipients usually start receiving checks from the agency right away, but the amounts are based on an estimate. As Leppard found out after nine years of receiving checks, he ended up owing the government money. Some other recipients discover they have been underpaid for years and get bonus payments -- though the pleasant surprise can be tempered by a large tax bill. In fiscal 2002, 10 percent of recipients learned they were underpaid and got checks, and about 6 percent found out they owed the government money. An agency inspector general's report in 1999 found that in one group of cases studied, it took, on average, nine years and eight months to process the final determinations of benefits. In one case, it took 18 years and four months. One retiree was overpaid for 14 years, for a total of $152,526. Eight percent of recipients surveyed said they thought the delays "had caused illness:" They feared having their benefits cut or being told they needed to repay the government. Things weren't much better in 2000, according to a follow-up report. In a sample of 60 pension plans, more than half the participants had to wait six to 20 years to receive their final determinations of benefits. In recent interviews, PBGC officials said the agency has modernized its procedures and cut the waiting game. All pensioners now receive a final determination of benefits within three years, they said. "We've fairly dramatically increased the number of decisions issued within a year, and we've eliminated the backlog" of older plans waiting to be processed, said Joseph H. Grant, the PBGC's deputy executive director and chief operating officer. ". . . We've made good strides in speeding that process up." Some delays are inevitable because corporate bankruptcy proceedings can drag out for years, officials explained. And the agency can't calculate exactly how much recipients should receive until they know how much they can collect as a creditor of the failed enterprise. Mary Ellen Signorile, an AARP lawyer specializing in employee benefits, said the agency sometimes confronts a paperwork nightmare when it takes over a pension plan. "When a company starts to go into bankruptcy, they let their recordkeeping slide," she said. "PBGC frequently needs to go in and reconstruct the records." Even short delays can be costly to retirees. For instance, many middle-aged LTV steelworkers rushed to retire early last year, as permitted by their plan, after the company announced it would shut down its Cleveland plant and liquidate, said pipe fitter Mark Granakis, 55, a plant employee for 33 years. The PBGC stepped in to take over the workers' pension plans. Granakis received a pension of $3,200 a month, which was what LTV had promised. But four months later, after reviewing his papers, the PBGC informed him that because he was 55, he qualified for a pension of only $1,425 a month, and he owed the federal government the difference, or $7,100. "The way it's structured is extremely unfair," Granakis said, even as he acknowledged the age limitations were set by Congress, not by the agency. The LTV plan was swamped with such early retiree claims, said the PBGC's Grant. "LTV was never geared up to put 7,000 workers into retirement at one time," he said. "Our goal is to pay people the correct amount" under rules set by Congress, Grant added. David Robbins, a pilot at US Airways, which terminated its pension plan after going bankrupt, retired in February when he reached age 60, the mandatory age for pilots. He had sold his house in Florida and bought property in Rosman, N.C., planning to use part of his expected $810,000 lump-sum pension payment to build a home on the site. Instead, when he called the airline, he found that others who retired in November, a month before the bankruptcy, had gotten their checks. But under agency rules, which don't allow lump sums, he would not. Instead, he will receive a regular check -- about $2,800 a month. "The whole thing is so frustrating," Robbins said. "You play by the rules, and then people won't give you the time of day." "If we paid lump sums, it would come out of the pockets of other participants," said Randy Clerihue, a PBGC spokesman. He said that many US Airways pilots, in fact, will receive larger pensions than they were told earlier this year, because there was more cash in the US Airways pension fund and fewer participants than some other larger plans the agency ran. One 78-year-old pilot who retired in 1985, for example, will receive about $69,700 -- only about 15 percent less than he had been promised, the spokesman said. "Most people are satisfied with the determination we've made," Grant said. John Biedermann, an attorney for the Pan Am retirees, disagrees. "People are left at the mercy of the PBGC," he said.
