Marketplace Report: Underfunded Federal Pensions U.S. government workers may be in for an unpleasant surprise when they retire -- a new Standard & Poor's report finds that federal pension plans are underfunded by more than $4 trillion. Madeleine Brand discusses the story with Tess Vigeland of Marketplace.
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Marketplace Report: Underfunded Federal Pensions

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Marketplace Report: Underfunded Federal Pensions

Marketplace Report: Underfunded Federal Pensions

Marketplace Report: Underfunded Federal Pensions

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U.S. government workers may be in for an unpleasant surprise when they retire — a new Standard & Poor's report finds that federal pension plans are underfunded by more than $4 trillion. Madeleine Brand discusses the story with Tess Vigeland of Marketplace.

MADELEINE BRAND, host:

Back now with DAY TO DAY.

We've heard a lot about the underfunding of corporate pensions. Companies aren't setting aside enough money to cover all their retiring employees.

Well, a report out today from Standard and Poor's says the situation is even worse for millions of state and federal government employees. Tess Vigeland joins us from the MARKETPLACE newsroom in Los Angeles.

And Tess, first explain what's meant specifically by the term underfunded.

TESS VIGELAND reporting:

Well, pension systems are basically a promise from an employer whether it's a corporation or a government that you're going to have certain benefits available to you when you retire, a certain income. And there are rules that employers have to follow about how much money they have to set aside to fund those benefits that they've promised.

There have been all kinds of debates over how much money should be set aside, how employers should account for that on their books, but overall, the experts say many companies and the state and federal governments aren't putting enough money aside for their future retirees. And that's what we mean when we talk about underfunding a pension system.

BRAND: Well, how bad is it for government employees?

Ms. VIGELAND: Well, according to this report out from S&P, the federal government's pension system for all federal employees, millions of them, is underfunded by $4.5 trillion. And Standard and Poor's chief economist, David Wyss says states are underfunded by about around $284 billion.

Mr. DAVID WYSS (Chief Economist, Standard and Poor's): State pension plans are a little bit better shape than the government pension plans, but not by much. The underfunding in the state pension plan is about twice as bad as the underfunding in corporate pension plans, both in absolute amount and as a percentage of the assets.

Ms. VIGELAND: And in fact, the average state pension plan is about 80 percent funded. On the corporate side, it's more like 90 percent. But of course, with both, you have the worst case scenarios. In corporate America, you've had big companies like United Airlines dumping their pension liabilities onto a federal agency after filing for bankruptcy.

In state governments, for example, West Virginia's state employee pension system has half the funding that it should. So it's retirees are in a bit of trouble.

BRAND: Hmm. And so what happens in the next several years when all the baby boomers start retiring?

Ms. VIGELAND: Well, in corporate America, you have this backstop called the Pension Benefit Guarantee Corporation. They take over company pensions if the company just can't pay, like United Airlines. In that case, the PBGC is essentially a proxy for the taxpayer. It's your tax dollars that are paying those pensions instead of the company.

The backstop for federal and state pension systems is, plain and simple, again, the taxpayer, the current workforce. And you're talking about having to prop up the retirement plans of millions and millions of employees if this problem isn't solved. And when you're talking about a federal government shortfall of $4.5 trillion, it's going to be a little difficult to try and make that up.

And we will have much more about all this later today on MARKETPLACE.

BRAND: Very good. Thank you, Tess Vigeland of public radio's daily business show, MARKETPLACE. It's produced by American Public Media.

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