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Pension Guarantor Calls for Changes -PBGC Asks Congress for New Powers-
By Albert B. Crenshaw, Washington Post
October 8, 2004
The government's pension insurance agency yesterday called on Congress to strengthen its hand in seeking to attach assets of bankrupt companies to protect those companies' pension plan participants, and also suggested that it be given more flexibility in negotiating deals with troubled pensions to keep them operating.
Bradley D. Belt, executive director of the Pension Benefit Guaranty Corp., told the Senate Commerce Committee that his agency has the power to place liens on a non-bankrupt company's assets if the company misses a required pension-fund contribution. But if the company is in bankruptcy, he said, "there is no penalty" for missing such a payment.
He also said that the PBGC will be reporting "a significantly increased deficit" itself in the next month or so.
"The longer-term solvency of the pension insurance program . . . is at risk," Belt said.
The agency has swung from a $9.7 billion surplus in 2000 to a $9.7 billion deficit as of last March, thanks in large measure to bankruptcies in the steel and airline industry, coupled with declining asset values and plunging interest rates, which have the effect of boosting liability values.
The PBGC has complained about the lien limitation before, but the case of bankrupt United Airlines has thrown it into sharp relief.
United skipped a $72.4 million payment due July 15 and a $110 million payment due last month. The airline has told the bankruptcy court that it is likely to terminate its four pension plans, an event that would place it in the PBGC's hands.
The agency estimates that the four are underfunded by a total of $8.3 billion, though the PBGC's liability would amount to less -- about $6.4 billion -- because some United workers' pensions exceed the amount guaranteed by the agency.
In an answer to questions, Belt said the PBGC's authority to take over troubled plans is a threat it can occasionally use to persuade a company to improve its funding. But it has few other such tools and that more flexible authority might be useful.
Belt said the PBGC is hampered by "a byzantine and often ineffectual set of funding rules" that result in "a poorly designed system [that] can be gamed." A weak company, for example, can make generous pension promises, and workers will accept, both knowing that if the company cannot keep its promises, the PBGC stands behind them.
U.S. Comptroller General David M. Walker told the panel that the airlines' pension crisis is "a symptom" of a broader problem for the pension system overall and should demonstrate that the way we currently fund and insure pension benefits has to change."
He noted that the PBGC has the authority to borrow as much as $100 million from the U.S. Treasury, but the agency is not backed by the full faith and credit of the government. However, he said, "Congress could face enormous pressure to bail out the PBGC," were it unable to pay guaranteed benefits.
Moments earlier, Belt said he wanted to assure the senators and workers that the PBGC and the Bush administration are "steadfast" in their "commitment to protect employees' pensions."
Senate Commerce Committee Chairman John McCain (R-Ariz.) noted that congressional auditors more than a year ago had listed the PBGC as a high-risk program.
"There is a possibility of a looming train wreck here that could cost the taxpayers of America untold billions of dollars," McCain said.
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