The government agency that guarantees worker pensions could see its liabilities quadruple over the next decade, jeopardizing the benefits of millions of retirees, a new report says.
In a report made public Thursday, the Congressional Budget Office estimated that Pension Benefit Guaranty Corporation shortfalls will reach nearly $87 billion over the next decade, up from about $23 billion in 2004.
The report also predicted that PBGC liabilities could rise to $119 billion in 15 years and $142 billion over 20 years as it is forced to take over large pension plans in the airline, steel and other troubled industries.
"Based on this report, the choice is either for pensioners to lose over $100 billion in promised retirement benefits or for taxpayers to get slapped with a $100 billion bill for failed private pension plans. Neither is acceptable," said House Budget Committee Chairman Jim Nussle (search), R-Iowa.
The PBGC, created in 1974, guarantees payment of basic pension benefits for about 44 million workers and retirees in more than 31,000 private-sector defined benefit pension plans.
It receives no funds from general tax revenues, with operations financed largely by insurance premiums and investment returns.
The corporation was running a surplus through 2001, but its bottom line has taken a sharp turn for the worse with a rash of bankruptcies among large companies in recent years. Bankruptcy filings this week by Delta and Northwest could further add to its financial burdens.
PBGC executive director Bradley Belt (search) issued a statement reminding the two airlines that "nothing in the bankruptcy code requires companies to skip their pension funding payments."
The PBGC estimated that Delta's pension plan is underfunded by $10.6 billion, and Northwest's by $5.7 billion.
The PBGC covers only part of the benefits due to employees who have contributed to failed pension plans. The current maximum guarantee for a worker who retires at age 65 is about $45,000 a year.
"The new CBO estimate would be bad news for taxpayers under any circumstances," said the Budget Committee's top Democrat, John Spratt of South Carolina. "But the news is even worse because of record federal budget deficits that are growing larger with the costs of Katrina relief and the war in Iraq."
Spratt noted that the CBO estimate of the corporation's shortfall over the next 10 years was up $15 billion from a report made to the committee three months ago.
Congress is currently considering various legislative approaches to ensure the long-term solvency of the PBGC while guaranteeing that workers will receive their promised benefits when they retire.
Steps being considered, including tightening up rules on how companies manage their pension plans and raising the premiums they pay to the PBGC, must be weighed against concerns that companies will drop pension plans for employees if they decide the costs are too high.