In the Hole

Bradley Belt struggles to keep the pension bailout fund afloat.

When Bradley Belt took over as executive director of the Pension Benefit Guaranty Corporation more than a year ago, it looked like he was going to have a tough time of it.

About 44 million workers and retirees are covered by the PBGC, established in 1974 as the federal safety net when companies fail to fund their pension programs. The agency had gone from a $10 billion surplus in 2000 to a $23 billion deficit in 2004. And that was before US Airways and United Air Lines filed for bankruptcy this year and announced that they would not be able to meet their pension obligations. "I don't think anyone would have envisioned the financial and operational challenges facing us," Belt says. "It's a deep hole and it's getting deeper."

Belt's unenviable job now is to figure out a way to keep his agency solvent while avoiding high premium hikes that might tempt large companies that contribute to the PBGC to walk away. The PBGC receives no government funding; companies pay a flat annual premium of $19 per employee or retiree to participate. The last rate hike was in 1994, up from $16 per employee.

The Government Accountability Office recently reported that even when the economy was stronger, many profitable companies failed to contribute adequately to their pension funds. By 2002, more than half of the largest pension plans were not fully funded, according to the report (GAO-05-772T). Pension plans were underfunded by more than $450 billion by September 2004, it added.

"The majority of companies appear to have taken full advantage of the rules to put a minimum amount into the pension fund," Belt says. "They're not acting illegally, but the companies have been perfectly willing to take advantage of that laxity in the rules."

Belt's task now is to save his agency. It has $44 billion in assets, but as GAO noted, its future is shaky unless changes are made. United, for example, paid $100 million into the fund over 30 years, Belt says, but PBGC will end up paying about $6.6 billion to fund pensions for United's 120,000 employees, retirees and former staff.

He is keeping a wary eye on the auto industry, too, where pension underfunding is rampant. "If we were a private insurer, we'd have been declared insolvent a long time ago," Belt says. "We have lots of assets, but our long-term viability is very much in question."

The Bush administration's proposal to save the agency would require companies to provide employees-and the PBGC-with more information about the stability of their pension programs. The plan would raise premiums to $30 per employee annually and offer varying risk-based premiums. Also, funding rules would be strengthened to give employers greater incentive to adequately fund pension plans.

Belt is determined to get Congress to adopt the plan. "He's great at putting very complicated concepts into very simple terms that the members can understand," says a senior aide to Senate Finance Committee Chairman Charles Grassley, R-Iowa. "He's got a tremendous amount of energy in an area that needs it."

Even Democrats who might not agree with Belt's proposals are impressed with his arguments. "He's very intense and creative," says a senior Democratic aide. "He's not just parroting lines . . . he has real depth of understanding."

Some of the PBGC's actions, such as taking over pension plans at companies like United, are unpopular among many union representatives. "We were completely blindsided by the [PBGC's] decision . . . to allow termination of our plan," Patricia Friend, president of the Association of Flight Attendants-Communications Workers of America, told the Senate Finance Committee in June. "I believe the PBGC failed in its No. 1 purpose of encouraging the continuation and maintenance of voluntary private pension plans."

Belt says the PBGC will pay most employees their full benefits-although they cannot accrue them in the future-but some will receive a significant reduction. The annual maximum the pension agency will pay is $45,614 for someone who retires at age 65. That means pilots, who must retire at 60 and would normally get a pension of about $100,000 annually, would be guaranteed only about $29,000 a year.

"It's easy to lose sight-but we don't-of the many people who had their retirement dreams shattered by a company reneging on its benefits," Belt says. He realizes that one option is for Congress to shut down the agency, but if it does, he says, "we're going to need to come up with $23 billion" to make good on broken promises.

Belt, 45, a Nebraska native, has a varied background. He was a financial services executive, general counsel and legislative director to Sen. John McCain, R-Ariz., and counsel to former commissioner of the Securities and Exchange Commission Charles Cox. He served as a senior vice president at the Center for Strategic and International Studies, a Washington think tank, and executive director of the National Commission on Retirement Policy. "I've been in and out of the federal arena for over 25 years. I've had pretty diverse roles, and I'm intimately familiar with the sausage-making on Capitol Hill," he says.

As for his own retirement, Belt says, he is in the Federal Employees Retirement System, has a 401(k) plan and the benefit of myriad pension plans over the years. But, he says, "I don't worry about retirement enough, which is far too true of too many Americans."