Pension Program Racks Up $3.6B Shortfall
WASHINGTON (AP) _ The government program protecting the retirement income that workers earn in employer-sponsored pension plans posted a record $3.6 billion shortfall in 2002 after burning through its entire $7.7 billion surplus.
The Pension Benefit Guaranty Corp. said Thursday that the bulk of that $11.37 billion net loss last year _ also the largest in the agency’s 28-year history _ was from securing a record number of underfunded pension plans at bankrupt and financially troubled companies, particularly in the steel industry.
The PBGC’s executive director, Steven A. Kandarian, said the insurance program still had sufficient assets to pay benefits to retirees ``for a number of years.″ But officials must find new ways to financially strengthen the program to meet future obligations, he said.
About 80 percent, or $9.3 billion, of the $11.37 billion net loss was because of underfunded single-employer plans. Declining interest rates accounted for nearly $1.7 billion of the loss.
The PBGC’s last deficit was in 1995, at $315 million. The only surpluses it has recorded were in 1996 through 2001.
Two key lawmakers said they intend to examine the financial troubles at the agency. Rep. John Boehner, R-Ohio, chairman of the Education and Workforce Committee, and Rep. Sam Johnson, R-Texas, a subcommittee chairman, said a hearing will be held in the spring.
The hearing will ``examine both the challenges facing the PBGC and the mandated funding formulas used by corporations and unions to determine if any changes need to be made in order to better protect American workers,″ Johnson said.
The PBGC was created in 1974 to guarantee payment of basic pension benefits. About 44 million American workers and retirees currently have pensions under PBGC control. The agency is financed by insurance premiums paid by companies that sponsor pension plans and by PBGC’s investment returns.
A Treasury official said the financial report ``is a wake-up call, reminding us of the work we need to do now so that retirees continue to receive in coming years the pension benefits they have earned,″ said Peter Fisher, treasury undersecretary for domestic finance and the Treasury Department’s representative on the PBGC’s board.
He said officials need to carefully select a permanent replacement for the 30-year bond as the rate for valuing pension liabilities. A higher rate, for example, would diminish liabilities.
Other ideas being considered are a hike in employer premiums, tightening funding requirements for pensions and imposing restrictions on benefit increases in underfunded plans.
The PBGC last year had its largest pension takeover ever when it insured the underfunded pension plans of LTV Corp. for $1.85 billion. The steel industry accounted for almost 80 percent of the underfunded plans in 2002.
The agency assumed control over 144 pension plans covering 187,000 people last year, up from 104 plans and 89,00 participants in 2001 _ a record increase.
Also, the PBGC paid a record $1.5 billion in benefits, nearly 50 percent higher than 2001.
Separately, the PBGC’s multi-employer program, covering 9.5 million participants in 1,661 plans, remained financially strong in 2002. It had a surplus if $158 million, up from $116 million in 2001.
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