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Struggling Pension Plans May Need $350 Billion Bailout, Study Says
By Jeff St.Onge, Bloomberg News
August 25, 2004
A $350 billion pension shortfall among U.S. companies may force the federal agency that insures retirement plans to seek a taxpayer bailout similar to the one during the savings and loan crisis, according to the Cato Institute, a Washington-based policy research group.
The Pension Benefit Guaranty Corp. had a record deficit of $11.2 billion last year after taking over plans for 152 companies such as Bethlehem Steel Corp. and US Airways Group Inc. Without changes to funding and premium rules, the PBGC's deficit is likely to swell to $18 billion in the next 10 years, and may reach more than $50 billion, said Richard A. Ippolito, who wrote the Cato study and is a former PBGC chief economist.
"If exposures create claims that reach catastrophic levels, taxpayers will be called upon to provide a bailout," Ippolito said in the study released Tuesday.
Stock-price declines and low interest rates have eroded the value of pension plans. Groups such as the Pension Rights Center, a Washington-based workers' advocacy group, have dismissed the likelihood of a bailout, saying the PBGC is well funded over the long term.
The study doesn't account for an upsurge in the market, which would boost pension assets, said John Hotz, the center's deputy director. "My initial gut reaction is it sounds like fear mongering."
The collapse of savings and loans in the 1980s and early 1990s cost taxpayers about $124 billion and the thrift industry another $29 billion, according to the Federal Deposit Insurance Corp.
The PBGC said in June that the total shortfall among U.S. companies with underfunded pension plans narrowed last year to $279 billion from $306 billion in 2002.
The agency's data comes from 1,050 company pension plans that are underfunded by at least $50 million. The companies used about $642 billion in assets to cover $920 billion in plan liabilities last year, the PBGC said.
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