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Pension Board Says Deficit Is Steady for Now
By Mary Williams Walsh, New York Times
November 16, 2005
The federal agency that insures pensions reported yesterday that its financial position stayed roughly constant over the last fiscal year, after three years of record losses. But its executive director warned that the pension system's troubles, and the risk to the agency, were not over.
The Pension Benefit Guaranty Corporation reported a deficit of $23.1 billion as of Sept. 30, almost identical to the record deficit of $23.5 billion it reported a year earlier. In the three fiscal years before that, the agency reported annual losses ranging from $7.6 billion to $12 billion.
The newest report suggested that the declines had leveled off because of general financial conditions and the timing of events rather than any basic change in the way companies handle their pension funds.
The agency said it had taken over 120 failing pension funds during fiscal 2005, with obligations of $21.2 billion owed to about 235,000 current and future retirees of bankrupt companies. The agency also added the assets of those 120 pension funds to its own portfolio, but they were worth only $10.5 billion, or a little less than half of what it will ultimately cost to pay the retirees their benefits.
The agency's losses for 2005 did not increase by the resulting $10.7 billion total shortfall in those plans, however, because it had already booked nearly that entire amount at the end of fiscal 2004.
The agency normally adds tottering pension funds to its books as soon as it is reasonably sure that the plans will fail within the next 12 months. Thus, the failure of the four big plans at United Airlines, and the three big plans at US Airways, were already booked as losses during the agency's fiscal 2004, even though the plans did not actually fail until 2005.
The agency also disclosed yesterday that some plans that it had deemed "reasonably probable" failures in its 2004 annual report did not actually fail as expected during 2005. The agency did not identify the companies sponsoring those plans, but said their total shortfall was about $6.4 billion. It has kept the plans on its books because its analysts still think they will fail soon.
In addition, the agency said in its financial report that it had identified an undisclosed number of new "reasonably possible" plan failures in 2005, and had added their total shortfall of $4.7 billion to its balance sheet. It did not identify the companies sponsoring those plans either.
Randolph Clerihue, an agency spokesman, declined to comment on speculation that they belonged to Delta Air Lines, Northwest Airlines or Delphi, all of which are in Chapter 11. But footnotes in the agency's report said that more than 90 percent of its exposure to probable plan failures was in the transportation, communication and utilities sectors.
The agency reported that the cost of virtually all of these looming plan failures was being offset, for the moment, by improvements in general financial conditions - several billion dollars' worth of favorable changes in interest rates, for instance. And it achieved strong returns on its own investment portfolio, in part because it recently started lending the securities, for a gain of $6.3 billion.
But its executive director, Bradley Belt, pointed out that such changes could not be counted on to strengthen the agency for the long haul.
"Unfortunately, the financial health of the P.B.G.C. is not improving," Mr. Belt
said in a statement. The agency's exposure to losses from pension plans run by companies with junk-grade credit ratings and other signs of distress now measures $108 billion, compared with $96 billion last year. Overall shortfalls in the plans insured by the government measured about $450 billion, the same as in 2004.
In addition, the agency reported a significant increase in the shortfalls of multiemployer pension plans in 2005. These are jointly sponsored by more than one company, covering workers from a single union.
Although the agency currently has enough money to keep paying retirees their benefits for the foreseeable future, Mr. Belt predicted that the money would eventually run out if Congress did not enact fundamental changes in the federal pension law.
Such bills are pending in Congress, but the process of achieving compromise has been slow. Strengthening the system is likely to cost billions of dollars, and the companies that bring the greatest risks to the system are the ones least able to help shore it up. Created in 1974 to insure company pension plans, the agency operated fairly uneventfully until 2002. Then a series of corporate bankruptcies hammered the agency's finances, raising fears of a possible bailout.
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