U.S. pension agency faces dire crisis

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November 18, 2004

First, a disclaimer. This isn't the sort of column to read if your eyes glaze over at stories about finance. Or if you are bored by news about backwater federal agencies whose names carry awkward-sounding acronyms.

But if you fear becoming one of the millions of Americans who is at risk, one day, of getting shafted out of your pension, read on.

Now that I've got your attention, you need to start taking seriously the problems at the Pension Benefit Guaranty Corp.

This is the government agency that insures workers' pensions so that if a company's plan goes belly-up - as so many steel industry pensions already have done, and as more airline industry pensions are likely to do - retirees still get much of the retirement benefits they were promised. The corporation's deficit more than doubled in the past year, to $23.3 billion. Though it can pay its current beneficiaries, the system could collapse in the not-too-distant future.

Workers who were promised a benefit would be crushed. Taxpayers might be burdened with billions for a bailout. Even more companies would, in all likelihood, drop their traditional defined-benefit pensions - the only retirement plans, beside Social Security, that guarantee a fixed monthly benefit.

Without an overhaul, the government insurer will run out of cash to pay benefits in 2020, according to an independent analysis by the Center on Federal Financial Institutions. That's way before Social Security is expected to develop financial problems.

And the PBGC's financial troubles would be much worse. If Social Security's trust fund is depleted, that system still would be collecting payroll taxes that could finance 75 percent of promised Social Security benefits. Not so with the PBGC.

Washington has known of the brewing crisis for years. The troubled airline industry, and the prospect of a domino effect from several airlines dumping their pensions at once, finally lends a sense of urgency.

"The biggest reason nothing's been done is that there is this big pool of pain that has to be allocated," said Douglas J. Elliott, president of the Center on Federal Financial Institutions.

The PBGC's problems are rooted in a chronic mismatch between the premiums employers pay for the insurance and the level of benefits it must pay out when plans falter. Congress hasn't boosted premiums since 1994 - a hiatus that has worsened the fiscal straits. Stock market fluctuations also can erode its assets. Lawmakers are reluctant to hike the premiums for fear that companies will simply end their defined-benefit pensions altogether.

"Clearly it has to be considered, but we all know it's very dicey," said Rep. George Miller (D-Calif.), ranking Democrat on the House committee on education and the workforce. "You increase it too much and people leave the system."

Rep. John Boehner (R-Ohio), who chairs the panel, plans an overhaul aimed at forcing companies to fund their pension plans more adequately - and stopping the gimmickry that now allows companies to under-fund their pension plans while hiding shortfalls.

The circumstances are dire, but here is an extraordinary turn: At the moment, both political parties agree on the nature of the crisis and on many aspects of a solution. This is, though, but a moment. Pension bills are the sort that get written in the confines of congressional backrooms. They attract swarms of lobbyists and scant media attention. The closeted atmosphere does not nurture exemplary work in the public interest.

So we need to change the atmosphere. The Senate reports it has received thousands of phone calls over remarks Sen. Arlen Specter (R-Pa.) made about the political prospects for a future Supreme Court nominee, which angered anti-abortion groups.

Could such energy ever be harnessed to save the agency that saves pensions?

That is the trouble. The lobbyists know whom to call, where to go, what to do, when the time comes. But they do not own these pensions. Workers do. And we have to save them for ourselves.

Marie Cocco is a nationally syndicated columnist and member of Newsday's editorial board. Her e-mail address is [email protected].

Copyright � 2004, Newsday, Inc.