Pension agency deficit mounts

Record $11.2 billion gap could threaten benefits

Bethlehem Steel is largest loss

Federal agency protects about 44 million workers

January 16, 2004|By Bill Atkinson | Bill Atkinson,SUN STAFF

The Pension Benefit Guaranty Corp., the federal organization that protects the pensions of 44 million American workers, said yesterday that its deficit reached a record $11.2 billion last year and warned that it is continuing to hemorrhage money.

Steven A. Kandarian, PBGC's departing executive director, said that while the agency has "sufficient assets to pay benefits to workers and retirees for a number of years, the growing gap between our assets and liabilities puts at risk the agency's ability to continue to protect pensions in the future."

The agency's financial burden more than tripled, Kandarian reported, as it took over 152 underfunded retirement plans and the agency became trustee for plans covering 206,000 workers last year.

Hundreds of employees of Bethlehem Steel Corp.'s Sparrows Point plant in Baltimore were among those who found themselves turning to the federal pension agency for help after Bethlehem sought bankruptcy protection.

The Bethlehem bankruptcy forced the agency to absorb 95,000 pension participants last year and take a $3.6 billion loss, the largest loss in its history from one company.

Some Baltimore retirees discovered to their dismay late last year that the PBGC would demand repayment of some benefits promised them by Bethlehem.

Critics say the federal pension safety net has been weakened because of inadequate federal enforcement of rules governing how corporate pensions are paid.

Low interest rates and a weak stock market recently weakened many corporate pension plans by lowering their investment earnings.

Despite such problems, some experts said yesterday that the PBGC is blowing its difficulties out of proportion and asserted that the pension payments of hundreds of thousands of retirees it serves are safe.

"Our basic feeling is there is no immediate crisis," said Karen Friedman, director of policy strategies at the Pension Rights Center, a Washington-based consumer rights group. "It is not like it is going out of business tomorrow. Retirees who are receiving benefits from the Pension Benefit Guaranty Corp. don't have anything to worry about."

"Presented as a short-term crisis, it really misses the mark," said Norman Stein, a law professor and pension expert at the University of Alabama. "It is not a short-term crisis, it is a long-term manageable problem."

But the PBGC, which released its annual report yesterday, wasn't nearly as confident. It lost $7.6 billion in fiscal year 2003 on the heels of an $11.4 billion loss the year before.

It uses premiums paid by companies with pension plans and income from investments to pay the pensions of workers whose plans have failed.

California Rep. George Miller, a ranking Democrat on the House Education and Workforce Committee, said yesterday that the agency's problems are of "very serious concern" and worse than anticipated.

"The deficit in the PBGC has been growing. In a matter of months, it has accelerated to a couple of billion dollars," Miller said. "They [PBGC] are sort of banging the bell, saying somebody better pay attention here, this thing is going South."

The PBGC's announcement was not received well by Bethlehem Steel retirees in Baltimore.

"I expected it," said Melvin Schmeiser, 56, who has been attending meetings about the PBGC since he found out it would be managing his pension. He expects to have to pay back $14,000 he had received from the agency.

"I don't want to lose what I'm supposed to be guaranteed by the government insurance," said Walt Stahl, 58, who retired from the steel company three years ago.

In December, his pension payments were cut to $1,717 per month from $2,237. Now he's worried that with the PBGC's deficit, he could lose even more.

"We've already gotten screwed once," added Stahl's wife, Joyce Stahl, who handles the family finances. "My husband worked there 38 years. We were guaranteed we were going to have a pension, we were going to have health care."

Stahl said her husband has taken a job as a bus driver so the two would have health insurance.

Miller fears there are more looming problems for the agency.

"There are a lot of other shoes to drop here within the business community," Miller said. "Companies are having tough economic times. We continue to worry we are going to inherit big employers from the steel industry, from the airline industry, form the auto industry.

"A number of companies would like nothing more than to get out of their defined benefit plans; bankruptcy allows them to emerge without a defined benefit plan," Miller said.

But other experts are confident the PBGC's bleeding will slow as interest rates rise and the stock market comes back. Some say the agency is overstating its problems.

"The PBGC is not in danger of running out of money, that would be years down the road," Stein said. He questions the size of the deficit and thinks it might be overstated.

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