Pension agency reports deficit

WASHINGTON — The Pension Benefit Guaranty Corp., which protects the private retirement plans of more than 44 million workers, said Thursday its deficit hit a record $11.2 billion in fiscal 2003.

The deficit, more than triple the $3.6 billion in the previous year, "puts at risk the agency's ability to continue to protect pensions in the future," Executive Director Steven Kandarian said in a statement.

In recent years, the PBGC has had to absorb the pension obligations of scores of companies, including major steel makers and airlines, that have filed for bankruptcy. Last year, the number of people owed or receiving guaranteed benefits rose to 934,000 from 783,000.

Last year, the General Accounting Office, a congressional watchdog agency, said the burdens are growing so quickly that "the program's long-term financial viability is in doubt."

At a House hearing last fall, Kandarian warned that "if companies do not fund the pension promises they make, someone else will have to pay — either workers in the form of reduced benefits, other companies in the form of higher PBGC premiums, or taxpayers in the form of a PBGC bailout."

The PBGC is funded privately with the insurance premiums paid by companies sponsoring pension plans. While it has enough cash to make benefit payments for the pension plans it already has taken over, its long-term prospects are dimming as obligations grow.

The agency's precarious financial position recalls the savings and loan crisis. Between 1986 and 1995, 1,043 thrifts failed, overwhelming the resources of the Federal Savings and Loan Insurance Corp. By 1999, taxpayers had shelled out roughly $124 billion to back up commitments made to insured depositors at bankrupt institutions.

In the private pension system, employers must set aside money that can be invested to keep pace with pension obligations. During the 1990s, when the stock market was shooting up, pension funds grew rapidly.

Over the past three years, corporate pension funds have been battered by stock market losses, lower corporate earnings, an increase in retirees, and low interest rates that reduced fund earnings and forced them to make larger cash contributions.

The PBGC has estimated the pension system is underfunded by more than $350 billion. For the past year, Congress has been considering making changes to the system. Last year, the House approved a bill that would correct a quirk in how the government calculates pension requirements.