Agency's Deficit Shrinks
The Wall Street Journal
Thursday, November 16, 2006
WASHINGTON -- The federal agency that insures private
pension plans for millions of Americans logged a deficit of
$18.1 billion this year, a big improvement from last year
thanks to a new pension law.
The narrower deficit for the 2006 fiscal year reported by
the Pension Benefit Guaranty Corp. on Wednesday was down
from a shortfall of $22.8 billion recorded in 2005 and a
record $23.3 billion posted in 2004. "The PBGC's financial
condition appears to have stabilized for the time being,"
said Vince Snowbarger, interim director of the agency, which
insures pensions for 44 million workers and retirees.
The agency disclosed in its annual financial report that as
of Sept. 30 it had assets of $60 billion to cover
liabilities of $78.1 billion.
PBGC attributed the shrinking deficit largely to a provision
in the new pension law that carves out special treatment for
the airline industry, giving airlines that are in bankruptcy
court and have frozen their pension plans extra time for
their pension plans to become financially whole. The agency
said this led to a sharp reduction in the amount of probable
liabilities reflected on PBGC's balance sheet.
Still, the report comes as Americans are feeling anxious
about their retirement security. In recent years, an
explosion of ailing companies have jettisoned their pension
liabilities to the PBGC. The problem has been especially
pronounced in industries such as steel and the airlines,
which are heavily unionized.
Organized labor wants the new Democrat-controlled Congress,
which will convene in January, to provide for more pension
protections, including for defined benefit plans, which are
increasingly being replaced by 401(k) plans.
The PBGC was created in 1974 as a government insurance
program for traditional, defined benefit pension plans.
Those plans give retirees a fixed monthly amount based on
salary and years of employment. Companies that sponsor these
traditional pension plans pay insurance premiums to the
agency. If a company cannot support its pension obligations,
the agency takes over the plan and pays promised benefits up
to certain limits.
The maximum annual benefit for plans taken over in 2006 is
$47,659 for workers who wait until 65 to retire. Workers who
retire before 65 get smaller benefits.
Addressing the PBGC's overall red ink this year, Greg
McBride, senior financial analyst at Bankrate.com, said:
"From the individual worker's standpoint, you are still
looking at a big deficit. The message here is even if you
have a pension, you still need to save on your own because
the health of that pension when you go to retire could be
tenuous. So it is important to take advantage of tax-favored
retirement savings options such as a 401(k) and an IRA."
Traditional pension plans are still underfunded but not by
as much as in the past, the agency said. These pensions now
are underfunded by $350 billion, compared with $450 billion
last year. Higher interest rates, a better performing stock
market, improved credit ratings and better plan funding by
some companies were among the factors that helped to narrow
the underfunding gap, economists said.
The agency said it was responsible for the pension benefits
of 1.3 million workers and retirees this year, reflecting no
net change from last year. The amount of benefits paid
increased to $4.1 billion this year from $3.7 billion last
year. The amount is projected to rise to $4.8 billion next
President Bush in August signed a bill to shore up funding
for traditional pensions. Supporters hope the changes will
help prevent a multibillion-dollar taxpayer bailout of the
Senate Finance Committee Chairman Chuck Grassley (R., Iowa,
who was involved in the pension overhaul legislation,
welcomed the smaller PBGC deficit. "It's good to see the new
pension reforms already working as intended," he said. "But
I don't want to overstate the reforms as a panacea for all
pension funding problems. They'll make a difference, but
Congress needs to stay on top of the situation."