Pension shortfall rose sharply in '92

November 23, 1993|By Kim Clark | Kim Clark,Pension Benefit Guaranty Corp.Staff Writer

There has been a dramatic widening of the gap between what some of America's biggest companies have promised to pay retired workers and what the companies have set aside for pensions, the federal government announced yesterday.

The Pension Benefit Guaranty Corp., which insures 67,000 corporate pension plans, protecting more than 41 million workers, released its annual list of the business world's biggest underfunded pensions as evidence mounts that a growing number of Americans might be relying on uncertain financial arrangements for their retirement.

The PBGC said that the total unfunded liabilities of the 50 companies with the biggest gaps grew nearly $9 billion, to an aggregate $38 billion in 1992.

The shortfall grew, the PBGC said, because falling interest rates reduced the amount being earned by the invested funds set aside for the pensions, and because many companies didn't deposit enough cash in their pension accounts during the year to keep up with increasing liabilities.

The biggest gaps between promises and reserves were found in the automobile and steel industries.

General Motors Corp., for example, ranked 19th on the list, having assets on hand of $39.6 billion, only two-thirds of the amount it will need to fulfill its promise to pay a total of $59.7 billion to its current and future retirees over the next several decades.

The workers and retirees of the listed companies were not expected to be affected by the funding gap, company and PBGC officials said yesterday.

Like all of the companies listed, GM is insured by the PBGC, which means that if it could not pay the pensions, the PBGC would pay each retiree up to $29,250 a year. That in some cases, is less than promised by the corporation.

Further, GM said it was committed to fully funding its pension plan by the end of the decade, and has no intention of having the PBGC pay for the pension.

In fact, pension experts said yesterday that those people who work for companies on the list were comparatively lucky, since they worked for companies that, at least, have insured pension plans.

About half of all working Americans aren't eligible for any pension plan. And a growing number of Americans are eligible for pensions that don't have any insurance to back up the plans.

For example, about 36 million Americans -- up from 20 million in 1980 -- work for companies whose only pension plan amounts to the interest and gains earned on money set aside in stocks and bonds in tax-exempt IRAs or 401(k) accounts.

The PBGC only insures private companies' pension plans that offer "defined benefits" such as the traditional guaranteed monthly payments of a fraction of a salary. It doesn't insure increasingly popular "defined contribution" plans in which companies and workers contribute to a special retirement account.

And others, such as the nation's 10.8 million federal employees, are working for pensions that are not guaranteed.

"You could say the list [of under-funded corporate plans] is the tip, and the federal pension plan is the iceberg" of pension gaps, said Dallas Salisbury, president of the Employee Benefit Research Institute in Washington.

While private employers are required by law to keep promises of payouts, federal pensions can be changed at any time by Congress, he noted.

As the Clinton administration prepares legislation that could force corporations to better fund their pension plans, the federal government faces a liability of up to $1 trillion for federal workers and retirees, Mr. Salisbury said.

Most of the people working for uninsured pensions will receive some pension payment when they retire, "but they may very well worry about what that payment will be," Mr. Salisbury said.

While the PBGC noted that the corporate pension funding gap has been growing for the past five years, Mr. Salisbury said that most private pensions guaranteed by the PBGC were well-funded.

And many companies on yesterday's list insisted that their pension funds were sound.

For example, Mack Trucks Inc., which the PBGC said has set aside enough cash only to pay 72 percent of its pension liability, said its plan was safe because the government counts the pension debt as if it were all due at once, instead of in small payments over the life of the retiree.

John Mies, a spokesman for the truck maker, which has 1,300 employees at an engine plant in Hagerstown, said it was the first time that Mack had made the top 50 list.

And CSX Corp. spokeswoman Elisabeth Gabrynowicz said her company believed the PBGC used "unrealistically conservative assumptions" to name the Richmond-based transportation company 30th on the list.

50 companies with largest underfunded plans

The 50 companies and the size of their potential shortfalls in unfunded guaranteed benefit liabilities and funding ratios as listed by the Pension Benefit Guaranty Corp. The companies are listed in order of the worst funding ratios. Companies in bold have significant operations in Maryland.

Company .. .. .. .. .. .. .. .. Potential .. .. .. Funding

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