Federal plan to insure pensions is in trouble

December 20, 1992|By New York Times News Service

WASHINGTON -- A growing chorus of economists and government officials is warning that the federal program that insures corporate pension plans is in deep financial trouble and might eventually require a costly bailout.

Coverage of private plans is just one part of the government's large pension problem. Because of past inattention, the pension plans for federal employees -- paid out of separate accounts -- are now underfinanced by more than $1 trillion.

Some officials, including President-elect Bill Clinton, have compared the potential problem to the savings and loan disaster.

Two Democratic congressmen with jurisdiction over the issue -- Reps. Dan Rostenkowski of Illinois and J. J. Pickle of Texas -- have told Mr. Clinton that they are concerned about the potential liability to the government.

The 18-year-old Pension Benefit Guaranty Corp. assures that when employers who pay premiums to it go bankrupt, the government will meet the company's obligations to their retirees. The pensions of 40 million Americans are insured by the corporation.

Most companies set aside enough money to cover the pension benefits they have promised their employees. But hundreds of others are neglecting to finance their pensions fully, and those liabilities have grown 70 percent in the last two years alone, to $51 billion at the end of 1991, from $30 billion at the end of 1989. Many underfinanced plans come from the troubled auto, steel, tire and airline industries.

In negotiating new labor contracts with workers, some of these companies have offered to bolster pensions in lieu of raising salaries -- promising, in effect, money they do not have now but hope to have in the future.

The pension agency's annual list of the 50 companies with the largest underfinanced pension plans showed a 13 percent increase in 1991 in guaranteed benefits not backed by money in retirement funds.

Among companies on the list are LTV Corp., Uniroyal Goodrich Tire Co., Chrysler Corp., Bethlehem Steel and General Motors.

While the federal pension corporation has enough cash to meet its obligations for the next several years, it shows a deficit of about $3 billion if anticipated future losses are factored in. That shortfall is projected to grow to as much as $30 billion as the baby boom generation begins to retire in 15 to 20 years.

This raises the likelihood that premiums, the main source of revenue, will have to be augmented, with taxpayer money making up the difference.

The government has raised the premiums before, but that prompted many companies to drop out of the program to avoid the increased costs. As it stands now, costs have climbed to about $19 an employee for a company in the plan, from $1 an employee 18 years ago. Rates are even higher for underfinanced plans.

Some critics of the pension agency contend that the problem is overstated and that the numbers show no immediate cause for alarm. But others maintain that the situation will worsen considerably if not dealt with now.

"Corporations in tight straits are making promises," said Representative Pickle, the chairman of a congressional oversight committee that has been examining the pension insurance program. "We've got to put a stop to it. If three or four major companies go under, so could the PBGC."

In the presidential debate in Richmond, Va., on Oct. 15, Mr. Clinton said, "We are going to have to change and strengthen the pension requirements on private retirement plans."

On Wednesday, Gene Sperling, deputy director of Mr. Clinton's economic transition team, said his staff would soon offer Mr. Clinton options to deal with the problem. Mr. Sperling added that Mr. Rostenkowksi had warned Mr. Clinton about the pension corporation in August.

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