Federal pension insurance staggers under new load

$71 billion shortfall looms in 10 years, Congress told

June 10, 2005|By Julie Hirschfeld Davis | Julie Hirschfeld Davis,SUN NATIONAL STAFF

WASHINGTON -- The federal agency that insures private pension plans faces a shortfall of as much as $71 billion in the next decade, the top congressional budget analyst said yesterday, adding urgency to efforts by President Bush and Congress to shore up the nation's increasingly troubled pension system this year.

The Pension Benefit Guaranty Corp., under strain after taking on the pension promises of airlines, steel makers and other companies that have recently declared bankruptcy, could see its losses triple over the next 10 years unless there are major changes, Douglas Holtz-Eakin, the director of the Congressional Budget Office, told a House committee.

About 34 million workers who depend on employer-sponsored pensions face major risks under the current system, which allows companies to under-fund their pensions and mask some losses.

The PBGC assumes a portion of a firm's pension obligations if the company goes belly-up -- workers in some cases have lost as much as one-third of their retirement savings. And the PBGC's problems could spell trouble for all Americans; even though the agency is not funded by taxpayers, the government would be virtually certain to step in to prevent it from becoming insolvent. A bailout could cost taxpayers billions.

There is "clearly a need for change in the law," said David S. Walker, the comptroller general of the United States and a former PBGC chief, who also testified at the Budget Committee hearing. He warned of "tremendous pressure for a taxpayer bailout" of the agency unless Congress acts.

The testimony came as Republicans on Capitol Hill unveiled legislation they said would fix the agency's problems and strengthen private pensions. The measure would increase the premiums that employers pay the PBGC to guarantee their plans and would change firms' contribution requirements in an effort to make sure they have enough money to pay workers their benefits.

"This bill strikes the right balance of establishing tougher funding requirements for employers, enhancing disclosure on behalf of workers, and protecting taxpayers from a possible multibillion-dollar bailout," said Rep. John A. Boehner of Ohio, a Republican who chairs the Education and the Workforce Committee and sponsored the measure.

Bush, who has staked much of his domestic agenda on his so-far stalled plan to overhaul Social Security, has also called for action similar to Boehner's proposal to bolster so-called "defined benefit" pensions. Those are employer-provided plans that promise workers a fixed amount of retirement benefits, as opposed to individual tax-advantaged "defined contribution" plans, such as 401(k)s.

Rep. Bill Thomas, the California Republican who is chairman of the Ways and Means Committee, indicated he wants to put the private pension bill and Bush's Social Security measure in a sweeping retirement savings measure he'd like to push through Congress this year.

Strengthening workers' private pensions might be seen as a popular add-on to the otherwise divisive idea of shifting the government retirement program toward individual retirement accounts. And if Bush's Social Security efforts should fail altogether, as some lobbyists and lawmakers privately predict, a major overhaul of the defined benefit pension system could help the president and his party claim victory anyway.

If the Social Security overhaul collapses, "doing something on [private pensions] becomes, at the end of the day, a face-saving way to say, `OK, we did something on retirement security,'" said Bob Shepler, director of corporate finance and tax at the National Association of Manufacturers.

The measure introduced yesterday generally tracks with Bush's plan for private pensions, which sparked derision among business groups when it emerged this year. Corporate lobbyists said the president's proposal would burden companies with excessive premiums and unpredictable contribution costs, and they warned that firms might choose to eliminate their pension plans instead of meeting the new requirements.

Similar concerns were expressed yesterday about the Boehner-Thomas measure, though business lobbyists said they preferred it to Bush's.

"It's an improvement over the president's plan. But will it still be the straw that breaks the camel's back in terms of driving employers out of the system or not? Maybe," said Randel Johnson, a lobbyist for the U.S. Chamber of Commerce.

Business interests prefer Boehner's measure because it would allow limited use of "smoothing" -- eliminated under Bush's plan -- a technique companies use to mask large losses from their employees and the public.

The House measure also uses what many companies believe is a more favorable interest rate than the one Bush proposed to calculate their pension liabilities, though businesses are pushing to keep the current corporate bond rate, which they contend is much simpler and more predictable.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.