Companies with underfunded pension plans reported a record shortfall of $353.7
billion in their latest filings with the Pension Benefit Guaranty Corporation
(PBGC), Bradley Belt, the agency's executive director, told the Senate Finance
That is up considerably from the $279.0 billion reported a year earlier. The
total increase in underfunding is $74.7 billion, or 27 percent.
The 2004 reports, filed with the PBGC by April 15, 2005, were submitted for
1,108 pension plans covering about 15 million workers and retirees. The underfunded
plans had $786.8 billion in assets to cover more than $1.14 trillion in liabilities,
for an average funded ratio of 69 percent. The reports are required only of
companies with more than $50 million in unfunded pension liabilities. As of
September 30, 2004, the PBGC estimated that the total shortfall in all insured
pension plans exceeded $450 billion.
Belt's testimony also contained a detailed analysis of the pension plans of
United Airlines. In May, a bankruptcy judge ruled that United could dump its
pension plans. The PBGC will assume responsibility of the plans.
Bell said that a loophole allowed the company to go for years without making
any cash contributions to the plans, without paying additional premiums to the
PBGC, and without sending underfunding notices to plan participants even though
United's plans have an aggregate funding shortfall of almost $10 billion and
an average funded ratio of 41 percent.
"United offers important, albeit painful, lessons that illustrate the
flaws in current law and which should guide us in reforming the defined benefit
system and pension insurance program," Belt said in his testimony.
PBGC is a federal corporation created under the Employee Retirement Income
Security Act. It currently guarantees payment of basic pension benefits earned
by 44 million American workers and retirees participating in over 31,000 private-sector
defined benefit pension plans. The agency receives no funds from general tax
revenues. Operations are financed largely by insurance premiums paid by companies
that sponsor pension plans and investment returns.