For many Americans, the Pension Benefit Guaranty
Corporation represents security in retirement. Since its establishment in
1974, some 785,000 former employees of insolvent companies have received
their pension from the PBGC.
However, this quasi-government body, which currently
insures the defined benefit (final salary) schemes of 44m
years ago we achieved a $10bn surplus," says Steven Kandarian, the
PBGC's executive director. "This year we've had a deficit of almost
$11bn. That's five times larger than any previous one-year loss in our
Despite this alarming decline, the PBGC is the
template for the
"We're in a large deficit position," Kandarian says. "In recent years we took on some seriously underfunded pension schemes,
primarily in mature industries such as airlines and steel, which dragged
down our net worth. If we took on a few more like that, the numbers would
deteriorate even quicker."
reluctant to give guidance - given the cultural and social
differences," he says with a smile. "But . . . contributions
should definitely be risk-based - so unsound funds pay higher
advice, like many aspects of the
PBGC caps annual payments at $44,000 (£25,500). Payouts from the PPF will
also be limited to a maximum value - as yet undetermined.
as Kandarian describes his scheme, the problems
he raises should sound an alarm about the PPF - not least that employer
levies will be too high, encouraging even more schemes to close.
the moment, the levy isn't too bad," he says. "But . . . I can't
guarantee this premium will be adequate going forward. And despite the risk-based element, companies with well-funded pensions
end up making transfers to those with badly underfunded plans. If
these transfers from strong to weak plans become too large then strong
companies elect to leave the system."
is, though, one major difference
is talk in official circles that the PBGC
could be "the next Savings and Loans crisis" - when US taxpayers
forked out hundreds of billions of dollars to cover insurance guarantees
on deposits at so-called thrift institutions (local banks, a little
like British building societies).
there were a government bail-out, Kandarian says, "in essence,
taxpayers would shoulder the burden of paying benefits to the 20 per cent
of private-sector workers [with a] defined benefit plan".
This highlights the dangers for the Treasury. Gordon Brown would be damned if he underwrites the PPF and damned if he doesn't - which isn't much of a choice.