Pension Guaranty Corp.'s Financial Troubles Deepen

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The government corporation that insures pensions for 35 million Americans is facing a serious financial shortfall of $23 billion. The deficit increased when United Airlines was allowed to transfer its pension obligations to the government. Now there's concern that taxpayers could face a costly bailout if other companies follow United's lead.


On Wednesdays, we focus on the workplace. Today, pensions in trouble. A government corporation which insures pensions for 35 million Americans is in big financial trouble. At last count, it was running a $23 billion deficit. The Bush administration wants to charge companies higher premiums to help close the gap, but firms with well-funded pension programs are concerned they'll be forced to pay for the mistakes of a few. And with United Airlines dumping its pension obligations on the government, there are fears that others will follow, and the deficit will grow. NPR's Frank Langfitt has more.


The Pension Benefit Guaranty Corporation has one of those bureaucratic names which obscures the crucial role it plays in the lives of many Americans. Each month, the PBGC, as people call it, makes pension payments to hundreds of thousands of retirees whose former employers can no longer do so. But as firms default on their retirement obligations, the Pension Corporation has to shoulder more responsibilities than it can afford. Bradley Belt serves as executive director.

Mr. BRADLEY BELT (Pension Benefit Guaranty Corporation): Just last year, we collected a billion and a half dollars in premium revenue. Our losses were $12 billion. That is not a self-sustaining business model.

LANGFITT: The corporation wants to raise the annual premiums it charges companies from $19 per employee to $30. James Klein runs the American Benefits Council, an advocacy group for corporate benefit plans. He says if changes to the system prove too onerous, some companies may drop their pension programs.

Mr. JAMES KLEIN (American Benefits Council): Companies find it to be fundamentally unfair that they should have to pay dramatically higher premiums in order to close the gap that has been caused by a handful of other companies that perhaps were not as responsible about their funding obligations as they should have been.

LANGFITT: Belt counters that premiums haven't gone up in years. He says another fee would make companies with higher risk pension plans pay more. In addition, Belt says the government needs to strengthen funding rules that he says mask the financial weakness of pension plans.

Mr. BELT: We have to make sure that we strike an appropriate balance. We don't want the good actors exiting the system. We want people to maintain their pension plans. By the same token, we have to correct the fundamental flaws that have gotten us to this point.

LANGFITT: Concern over traditional pension plans comes as the nation debates the future of another major source of retirement income: Social Security. Traditional pension plans that pay a fixed amount each month have been in decline for years. In the mid-1980s, there were 112,000 such plans. Today there are 30,000. Facing fierce competition and pressure to cut costs, many firms have ended such programs and shifted to retirement investment plans, such as 401(k)s. Most of the Pension Corporation's deficit is driven by a small number of companies in the battered airline and steel industries, which ended pension plans they couldn't fully fund. Harley Shaiken is a professor who specializes in labor at the University of California at Berkeley. He says that as firms drop their pension plans to compete, more will follow.

Professor HARLEY SHAIKEN (University of California at Berkeley): When one major company does it--for example, what recently happened with United, shifting its burden to the PBGC--that sets the new standard for competitiveness. Then everyone scrambles to emulate that. What we then, in effect, have is a race to the bottom.

LANGFITT: Retirees who rely on the Pension Corporation wonder what that could do to their monthly checks. Bruce Davis is a retired Bethlehem Steel executive. He also represents the company's salaried retirees. Several years ago, the Corporation bailed out Beth Steel's pensions. Every month, it sends Davis $1,700, more than a third of his retirement income. Speaking from his home in Bethlehem, Pennsylvania, Davis says retirees are concerned the Pension Corporation will become swamped with obligations.

Mr. BRUCE DAVIS (Retired Bethlehem Steel Executive): I do worry about it, and speaking for my 28,000 constituents, we worry about it, because we pick up the newspaper, and here's United Airlines and their 6.6 billion in unfunded liability being taken on by PBGC, and then you have the suggestion that, well, if United goes as it has, who's next? How many other airlines will say, `We want our pension check also assumed by the federal government'? Very, very disquieting period for our folks.

LANGFITT: The Bush administration is pushing for a solution. A House committee is expected to take up a bill next month designed to fix the Pension Corporation's deficit. If that doesn't work, government officials warn that taxpayers might have to pay for a bailout. Frank Langfitt, NPR News, Washington.

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