Pension-Liability Shortfall Said to Rise Total Could Exceed $80 Billion This Month, Federal Agency Estimates By Albert B. Crenshaw Washington Post Staff Writer Friday, September 5, 2003; Page E03
Pension benefits promised but not funded by troubled U.S. corporations -- benefits that might ultimately have to be paid by the government's pension insurer -- could total more than $80 billion by the end of this month, the insurer's executive director told a House committee yesterday. That would be up from $35 billion last year and reflects what the executive director, Steven A. Kandarian, called "chronic underfunding" of traditional pension plans operated by struggling companies. These weaker companies are the ones most likely to fail or otherwise be unable to continue operating their pension plans, in which case the government's Pension Benefit Guaranty Corp. would step in and assume their obligations. In the worst case, the PBGC might be overwhelmed, forcing U.S. taxpayers to pay for a savings-and-loan-like bailout, some experts have said. The pension insurer showed a deficit of $5.7 billion at the end of July. That is up from $3.6 billion at the end of fiscal 2002. That deficit, Kandarian noted, is the amount by which the PBGC's long-term liabilities exceed its assets. There is no immediate danger that the agency will not be able to pay the approximately $2.5 billion that it gives annually to participants in plans that it has taken over. The PBGC currently has more than $30 billion in liquid assets, he said. Kandarian and U.S. Comptroller General David M. Walker both warned the House Committee on Education and the Workforce that the funding rules for traditional pensions -- in which employers promise to pay benefits spelled out by a formula in the plan -- need reform to ensure that companies devote adequate resources to them. "If companies do not fund the pension promises they make, someone else will have to pay -- either workers in the form of lower benefits, other companies in the form of higher PBGC premiums, or the taxpayers in the form of a PBGC bailout," Kandarian said. Corporations that run traditional pensions, however, say that such fears are overblown. They say much of the recent underfunding is the result of the simultaneous plunge of the stock market and interest rates, which had the effect of reducing the value of pension plan investments while causing computed liabilities to rise. They predict that the situation will improve as markets return to more normal conditions. "Certainly, the PBGC's financial solvency is important and should be examined very carefully," said James A. Klein, president of the American Benefits Council, which represents large employers. "However, the current deficit does not represent a serious long-term threat to the agency's viability, and in fact there are numerous more critical threats to the defined-benefit pension system." Most urgent, he said, is the approaching expiration of a temporary provision easing the rules for computing pension liabilities. Generally, plans are required to use the interest rate on 30-year Treasury bonds, which is now very low, and the lower the interest rate the higher the liabilities. The relief provision, which allows a less stringent formula to be used in calculating liabilities, is to expire at the end of this year. If companies are required to revert to the earlier formula, many would have to pour large amounts of cash into their plans, which might encourage some to freeze or terminate their plans. Companies are pressing to be allowed to use a higher, corporate-bond rate instead. ==================================== To this day, no one has come up with a set of rules for originality. There aren't any. [Les Paul]
