WASHINGTON – The federal agency that insures private pensions could see its deficit balloon to $71 billion during the next decade, Congress' top budget analyst said Thursday.
The Pension Benefit Guaranty Corp., which already has a $23.3 billion deficit, could face a threefold increase because companies are shedding their pension obligations in bankruptcy court and premiums for the insurance it provides have not kept pace with claims.
Lawmakers are writing legislation they hope would help alleviate the problem, both by helping companies avoid defaulting on their pensions and by increasing premium payments. Testimony on Capitol Hill (search) highlighted the challenge.
Douglas Holtz-Eakin (search), director of the Congressional Budget Office, told the House Budget Committee that current premiums would have to be increased fivefold to cover the projected deficit, which he acknowledged was based on a model for projecting pension funding that is still under development.
"PBGC often reports that plans that appeared to be well-funded prior to termination turn out to be deeply underfunded when they are transferred to the agency," said a statement Holtz-Eakin submitted to the committee.
To take aim at that problem, two House committee chairmen announced Thursday they were supporting a bill to shore up defined-benefit pensions. It's likely to end up as part of a broader bill that would include changes to Social Security.
The bill, co-sponsored by Rep. John Boehner, R-Ohio, and Rep. Bill Thomas, R-Calif., would:
— Require employers to eliminate pension underfunding within seven years;
— Prohibit unions from negotiating more lucrative pension packages if their plan is already less than 80 percent funded;
— Increase corporate pension insurance payments from the current $19 to $30 per employee;
— Allow employees to view the same reports about their plan that their employer files with the Federal Pension Benefit Guaranty Corp., the agency that insures the plans.
Currently employees can see only more favorable reports filed with the IRS, which meant that not only airline employees but also previous workers in the steel and automotive supply industries were caught off-guard when their plans were terminated.
Boehner, chairman of the House Committee on Education and the Workforce, and Thomas, chairman of the House Ways and Means Committee, said United Airlines' (search) default on $9 billion in pension commitments last month underscored the need for updating the rules governing the plans. Some 120,000 current and retired workers will receive only about two-thirds of their promised pensions through the insurance provided by the PBGC.
All told, 34 million people — roughly 20 percent of the nation's work force — expect to receive retirement payments from defined-benefit plans. Even before Holtz-Eakin's testimony, the size of the PBGC's deficit raised the specter of another government bailout, akin to the 1980s savings and loan situation, unless the funding rules change.
Boehner's bill echoes a proposal made by the White House in January. However, it is more friendly to big business because it would retain some of the so-called "smoothing" techniques that allowed United to choose favorable interest rates — and credits for past investment gains — to project a healthy pension fund in the years before its default.
During a Senate hearing Tuesday, David Walker, the head of the Government Accountability Office, said such smoothing "leads to a huge expectations gap." And Bradley Belt, the PBGC's executive director, said there is a "real risk" in retaining the practice when determining the amount of money deposited in a pension plan.