PBGC reports '02 hit of $11 billion

Pension-plan takeovers left U.S. agency with $3.64 billion deficit

January 31, 2003|By Gus G. Sentementes | Gus G. Sentementes,SUN STAFF

The federal agency that terminated Bethlehem Steel Corp.'s underfunded pension plan last month said yesterday that it lost more than $11 billion last year - the largest loss in its 28-year history - after taking over pension plans at a number of troubled companies and paying out record benefits to participants.

The loss at the Pension Benefit Guaranty Corp., which insures private pension plans, wiped out a $7.73 billion surplus the agency had in 2001. The agency attributed most of its losses to pension plan terminations.

The nation's troubled steel industry accounted for more than 80 percent of the $9.31 billion in losses due to pension plan terminations. Declining interest rates accounted for $1.65 billion of the loss.

Steven A. Kandarian, the PBGC's executive director, said in a statement yesterday that the agency has sufficient assets to meet its obligations but that it must look for ways to strengthen itself for the long term.

"Current retirees should not be concerned," Kandarian said. "This agency has plenty of assets on hand to pay benefits to workers and retirees for a number of years and we're going to address the long-term problem."

The agency said yesterday that it had $25.43 billion in assets to cover $29.07 billion in liabilities - a $3.64 billion deficit - for fiscal 2002, which ended Sept. 30. The PBGC's single-employer program insures the pensions of 34.4 million people who participate in more than 30,000 plans.

Operating with a deficit is not new to the PBGC. Formed in 1974, the PBGC recorded deficits for 21 years before posting surpluses from 1996 to 2001.

Two congressmen said yesterday that they plan to take a closer look at the PBGC's financial health.

Republican Reps. Sam Johnson of Texas and John Boehner of Ohio announced plans for a hearing in the spring.

Peter R. Fisher, the U.S. Department of Treasury's undersecretary for domestic finance and its representative on the PBGC's board of directors, called the agency's annual report "a wake-up call" in a statement yesterday.

Steel's woes

The troubled steel industry, which has seen more than 30 companies file for bankruptcy since 1997, weighed heavily on the federal agency last year.

The termination of Bethlehem Steel's pension plan Dec. 18 was factored into the PBGC's loss last year. The PBGC currently estimates its liability at $3.7 billion.

A Bethlehem spokeswoman said the PBGC has yet to assume administrative control of the plan - a process that is likely to take several more months.

The PBGC also absorbed a $1.85 billion liability from the underfunded pension plan of the former LTV Corp., a defunct Cleveland steelmaker whose mills were bought out of bankruptcy by New York financier Wilbur L. Ross Jr. last year and which now operates as International Steel Group Inc.

The PBGC also moved last year to take over the $1.1 billion plan at National Steel Corp., which is operating in Chapter 11 bankruptcy protection.

Other smaller steel companies accounted for another $396 million in losses, the PBGC reported.

Record benefits paid

According to the PBGC, the agency last year:

Assumed control of 144 pension plans covering 187,000 people vs. 104 plans and 89,000 participants in 2001 - a record one-year increase;

Paid a record $1.5 billion in benefits, nearly 50 percent higher than 2001;

Owed or paid benefits to 783,000 participants of plans it had taken over, compared with 624,000 in 2001.

Since its formation, the PBGC has paid out $9.4 billion, or 58 percent of total claims, to participants of steel companies' pension plans that it took over, said PBGC spokesman Jeffrey Speicher.

Airline companies accounted for 13 percent of claims, while other companies accounted for 29 percent.

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