Pension Deficit Is Expected to Surge
The nation's insurer for employee plans could see its shortfall
quadruple in 10 years.
From Associated Press
September 16, 2005
WASHINGTON — The government agency that guarantees worker pensions
could see its deficit quadruple over the next decade, jeopardizing the
benefits of millions of retirees, a new report says.
In a report made public Thursday, the Congressional Budget Office
estimated that the Pension Benefit Guaranty Corp.'s shortfalls would
reach nearly $87 billion over the next decade, up from about $23
billion in 2004.
The report also predicted that the pension insurer's deficit could
rise to $119 billion in 15 years and $142 billion over 20 years as it
is forced to take over pension plans in the airline, steel and other
"Based on this report, the choice is either for pensioners to lose
over $100 billion in promised retirement benefits or for taxpayers to
get slapped with a $100-billion bill for failed private pension plans.
Neither is acceptable," said House Budget Committee Chairman Jim
The agency, created in 1974, guarantees payment of basic pension
benefits for about 44 million workers and retirees in more than 31,000
private-sector defined-benefit pension plans.
It receives no funds from general tax revenues, with operations
financed largely by insurance premiums and investment returns.
The corporation was running a surplus through 2001, but its bottom
line has taken a sharp turn for the worse with a rash of bankruptcies
among large companies in recent years. Bankruptcy filings this week by
Delta Air Lines Inc. and Northwest Airlines Corp. could further add to
its financial burdens.
Delta said Thursday that it would send a letter to 3,500 retired
pilots telling them that it might miss their October pension payments.
Bradley Belt, the agency's executive director, issued a statement
reminding the two airlines that "nothing in the Bankruptcy Code
requires companies to skip their pension funding payments."
The agency estimated that Delta's pension plan was underfunded by
$10.6 billion and Northwest's by $5.7 billion.
The agency covers only part of the benefits due to employees who have
contributed to failed pension plans. The current maximum guarantee for
a worker who retires at age 65 is about $45,000 a year.
The new Congressional Budget Office estimate "would be bad news for
taxpayers under any circumstances," said the Budget Committee's top
Democrat, John Spratt of South Carolina. "But the news is even worse
because of record federal budget deficits that are growing larger with
the costs of Katrina relief and the war in Iraq."
Spratt noted that the estimate of the shortfall over the next 10 years
was up $15 billion from a report made to the committee three months
Congress is considering various legislative approaches to ensure the
long-term solvency of the pension insurer.
Steps being considered, including tightening up rules on how companies
manage their pension plans and raising the premiums they pay to the
agency, must be weighed against concerns that companies will drop
pension plans for employees if they decide the costs are too high.