Pension agency slips into deepening financial trouble

New figures show that the Pension Benefit Guaranty Corp., the agency that insures pensions, is plunging into deepening financial trouble, prompting lawmakers to express fears that taxpayers may ultimately end up picking up the tab for the pensions of the 20 percent of private sector employees with defined benefit retirement plans.

PBGC's deficit has grown to a record $8.8 billion as of Aug. 31, PBGC Executive Director Steven Kandarian told the Senate Aging Committee at a hearing Tuesday.

The agency attracted congressional attention when a General Accounting Office study this summer showed it was running a $5.7 billion deficit. Senate Aging Committee Chairman Larry Craig, R-Idaho, said he worried that taxpayers might end up bailing out the troubled traditional pension system in the same way that they had to bail out the savings and loan industry in the 1980s.

"Of course, the details of the pensions and the S&L situation differ in many ways," he said. "But the result could eventually be the same if we do not engage in thoughtful consideration of the issues at hand."

During the hearing, Kandarian said the situation would be exacerbated by a provision in Senate pension legislation absolving companies with underfunded plans from making accelerated payments to the PBGC. The payments, called deficit reduction contributions, were imposed in 1987 as a way to get companies to fund their plans before they failed and their obligations transferred to the PBGC.

The PBGC has estimated that suspending the deficit reduction contributions for three years would cause an additional $40 billion in the underfunding the agency. If PBGC deficits grow too large, Kandarian said, the premiums could rise so high that companies would stop paying them, prompting Congress to use taxpayer money to pay benefits.

"Some have suggested that [PBGC solvency] issues should be addressed 'at some point,'" Kandarian said. "Deferring action until a crisis point would risk subjecting the entire pension system to similar but much more serious strains in the future."

Business groups, however, argued during the hearing that the PBGC's long-term outlook was good. "To be alarmed by the current deficit and overreact would be a mistake," said Scott Macey, senior vice president of Aon Consulting, which represents a coalition of business groups with an interest in pension policies. PBGC's liabilities will be stretched out over many decades, he said, a period in which its investment gains likely will outweigh its "paper deficits."