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.
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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