Warnings of a financial crisis in the nation's worker pensions system are overstated, an industry group said Friday as Congress prepared legislation to overhaul the system to protect future retirees' benefits.

The liabilities of the federal agency that guarantees worker pensions, estimated at $23.3 billion at the end of 2004, are inflated by excessively low interest rate assumptions and overly conservative investment strategies, according to a report prepared for the American Benefits Council (search), which represents companies with defined benefit pension plans.

There's no dispute that the Pension Benefit Guaranty Corp. (search) has inherited large liabilities in recent years and a change in funding rules is needed, said Council President James Klein.

"But it is equally true that the financial assumptions used by the agency make the situation appear far worse than it actually is," Klein said.

In response, the PBGC provided a statement by its auditors, PricewaterhouseCoopers (search), that the agency's assessment of its financial position was fair and in accordance with generally accepted accounting principles.

The Council report concluded that the interest rate used to calculate pension obligations, now less than 5 percent, is too low, and that the PBGC shortfall would be only $14.3 billion if a 6.2 percent corporate bond rate were adopted.

It added that the PBGC does not have a current solvency crisis and "by any reasonable measure, the PBGC has sufficient assets to continue paying benefits for at least 15-20 years."

The report was in sharp contrast to a Congressional Budget Office report last week that predicted a jump in PBGC liabilities to $87 billion over the next decade and $142 billion in 20 years.

The CBO factored in estimates of future bankruptcies and plan terminations, predictions that gained some reality last week when Delta and Northwest, two major pension plan holders, filed for bankruptcy.

The PBGC, founded in 1974, guarantees payments of basic pension benefits for about 44 million workers and retirees in more than 31,000 private-sector plans.

It operates on revenues from premiums and investments, but there's growing concern that without reform it will require a taxpayer bailout. The agency went from a surplus just four years ago to a mounting deficit as it took over the pension obligations of bankrupt steel and airline companies.

Congress has made pension reform a top priority, and Senate Finance Committee Chairman Charles Grassley, R-Iowa, said the Senate could take up the issue after it votes on John Robert's nomination to be chief justice.

Grassley and Sen. Max Baucus, D-Mont., have a bill that would use a bond yield curve to calculate pension funding, set a timetable for underfunded plans to catch up, establish new transparency and disclosure rules, and increase annual premiums paid to the PBGC from $19 to $30 per worker.

Grassley's committee is seeking to find common ground with a competing bill by Senate Health, Education, Labor and Pensions Committee Chairman Sen. Mike Enzi, R-Wy.

At issue is how to strike a balance between the need to shore up PBGC finances and force faltering funds to meet their obligations without putting an undue financial burden on the majority of plans that are well run.

The number of defined benefit plans fell from 114,000 in 1985 to 31,000 in 2004 as many smaller companies dropped their plans. The ABC report warned that overstating the risks to the system could undermine confidence and lead to further plan terminations and freezes.