Trouble for federal agency that backs 44 million pensions
The Pension Benefit Guaranty Corp. faces rising deficits. A big bankruptcy could swamp it.
Imagine an insurance company that is facing today a deficit of billions of dollars. But its board of directors has not had a meeting since February 2008.Skip to next paragraph
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Meet the Pension Benefit Guaranty Corp., a federal agency that takes over underfunded pension funds from bankrupt companies and pays their retirees.
Going into this year, the PBGC was running a deficit of $10.7 billion as the premiums set by Congress and paid by on-going companies were less than the payments to retirees. Then, on Wednesday it said for the first half of 2009, the deficit had ballooned out to $33.5 billion, the largest in PGBC history. Now Congress, who has oversight over the entity, is worried about what might happen if some really large corporation—think auto industry—dumped pension liabilities on the PBGC. Some outside experts can envision a future deficit as high as $100 billion.
On Wednesday, a US Senate committee, the Special Committee on Aging, headed up by Sen. Herb Kohl (D) of Wisconsin, will begin to look at the underpinnings of the PBGC. The provocative title of the hearing: “No Guarantees: As Pension Plans Crumble, Can PBGC Deliver?”
The problems at the PBGC could have larger ramifications. The retirements of some 44 million Americans under 31,000 separate pension plans are covered by the organization. Congress, which sets the benefit and premium levels, may have to make some tough decisions: increase premiums on business during a recession, lower benefits to workers, or ask taxpayers to pick up the difference.
“Legally, the US does not have to pick up the tab,” says one congressional staff member who works on the issue. “But the political pressure would be immense.”
That pressure could ratchet up even more if General Motors were to file for bankruptcy. Mr. Elliott, in a white paper released Wednesday, estimates GM’s pension shortfall is $20 billion.
“Right now, the bulk of that $20 billion will be paid for by the auto workers and retirees,” he says.
But, he adds, it’s not unusual for companies to stop making contributions while still providing benefits. “It’s not unheard of for an additional 20 percent to be underfunded, and almost all of that would fall on the PBGC,” says Elliott. “For the PBGC, the amount it will have to absorb from GM could go from $4 billion to $24 billion without a lot of crazy assumptions.”
The agency itself publishes what it terms “reasonably possible losses.” At the end of fiscal year 2008, the PBGC estimated those at $36.6 billion for the fiscal years 1987 to 2008.
Underfunded pension plans