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September 14, 2004
Dire Straits Predicted for PBGC

The Pension Benefit Guaranty Corporation, the federal agency that insures pensions, is slowly running out of money, according to an independent analysis obtained by The New York Times.

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The analysis, conducted by Douglas J. Elliott, president of the Center on Federal Financial Institutions, suggests that the PBGC will go broke in 2020 if current financial conditions persist. Even if conditions improve, the agency will still run out of money by 2023.

That, in turn, will result in one of two things: no more checks for retirees, or calling on taxpayers to bail the agency out, according to the Times.

Currently, the PBGC provides benefits to more than 1 million people whose pension plans have collapsed. In addition, it guarantees the benefits promised to another 43 million more people.

Even before Elliott's analysis, concerns were being raised about the PBGC's capacity to serve as a backstop for pension plans, especially in light of worsening conditions in the airline industry. On Sunday, US Airways filed for bankruptcy for the second time in two years, raising fears that it might default on the three pension plans it operates, for flight attendants, mechanics and white-collar employees. The PBGC has said that it would suffer a $2.1 billion loss if all three plans failed.

United Airlines, already in bankruptcy, has warned that it may default on its pension obligations--which might compel other airlines to cut or shed their pension plans, leaving the PBGC with the tab for those benefits.

The Times described Elliott's analysis as the first, at least in the public domain, to try determining the exact breaking point for the agency. His findings "suggest that America's system of guaranteed pensions is in far more precarious shape than its older, bigger and more prominent cousin, the Social Security system."

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