The Pension Benefit Guaranty Corp., the federal entity that insures private
pension plans, hit a record deficit of $8.8 billion as of Aug. 31, the agency's
executive director told Congress on Tuesday.
Much of the red ink came in August alone. The PBGC had previously reported
a deficit of $5.7 billion through July.
Congress received the numbers this week from PBGC Executive Director Steven
Kandarian, who issued a warning during his testimony before the Senate Special
Committee on Aging.
"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," Kandarian said.
Currently, the PBGC receives no tax dollars; it is funded with premiums paid
by companies that sponsor pension plans.
But according to the agency's latest numbers, those pension plans are underfunded
by a total of more than $350 billionabout $80 billion of it owed by plans
in such severe condition that the PBGC may have to assume the obligations.
The Associated Press notes that low interest rates, the sluggish economy, stock
market losses, and an increase in retirees all have hurt the private pension
PBGC has taken over more than 3,200 private pension plans paying benefits to
nearly 1 million current and future retirees. Payments totaled $2.5 billion
in the financial year ending Sept. 30, and are expected to grow to nearly $3
billion this financial year.
"Defined benefit pension plans continue to be an important source of retirement
security for 44 million American workers," Kandarian said in his testimony.
"But there has been a sharp deterioration in the funded status of pension
plans, and the PBGC now has a record deficit as the result of the recent terminations
of large underfunded plans."
Last week, according to the AP, the House offered $26 billion in relief to
companies struggling to keep up with pension plan payments.
The legislation also would replace only for two years the 30-year
Treasury bond interest rate that has been used to measure pension benefit liabilities.
The Treasury Department discontinued the bond in 2001.
An interim formula to determine pension liabilities expires at the end of the
year, and Congress is debating what measure to use.