>According to Reuters, Reuther estimated it would cost between $20 billion and $40 billion to cover the pension liabilities in the airline and steel industries that the Pension Benefit Guaranty Corp. (PBGC) either has already absorbed, or expects to absorb shortly. “We don’t think it’s out of line to say we had a disaster in the steel and airline industries, and the government ought to step up,” he told the Capitol Hill conference hosted by the Center on Federal Financial Institutions, according to the report. He compared the PBGC’s current woes to natural disasters where the federal government steps in to provide aid, according to the report.
>Last week the PBGC, the government agency that insures the nation’s private pension system, said its deficit had more than doubled to $23.3 billion in fiscal year 2004 (see PBGC Posts Record Deficit in FY2004 ). In October PBGC Executive Director Bradley Belt told the US Senate Commerce Committee that the total exposure of plan participants and the agency’s pension insurance program for the airline industry was $31 billion on a termination basis including $6.4 billion, which is guaranteed by the PBGC (see PBGC Head Forecasts “Significantly Increased” Shortfall ).
>Belt, speaking at the conference Friday, told attendees that the Bush administration would introduce a pension funding reform plan after the new Congress resumes next year, and several lawmakers also are working on related legislation, according to the report.
>The PBGC insures traditional “defined benefit” pensions of about 44 million American workers, financed by premiums paid by companies that sponsor such programs.
>Belt has previously pushed the notion of reforming pension funding rules by getting rid of some of the loopholes companies use to avoid putting money in their plans – and on Friday said again that the insurance premiums companies pay to PBGC needed to be “rationalized” to reflect the risk of default, and said the agency would like to have the power to put a lien on a company’s assets in bankruptcy proceedings (see PBGC Head Forecasts “Significantly Increased” Shortfall ).
>Reuters said that while Reuther agreed pension funding reform was needed so that the crushing problems the PBGC faced now are not repeated, he opposed giving the PBGC more powers in bankruptcy or increasing insurance premiums, saying the latter could encourage companies to simply drop traditional defined benefit plans, which have a fixed payout at retirement.
>In managing some of the underfunded liabilities it has assumed in recent months, the PBGC has stepped in prior to plan termination – in so doing heading off an obligation to pay so-called “shutdown benefits,” which enable a worker meeting certain age and service requirements to begin receiving pension benefits after the shutdown, rather than having to wait to reach a specified retirement age. These benefits – which greatly exacerbate the funding gap for these programs – are prized by union workers in the steel industry particularly (see Steelworkers to Appeal Shutdown Benefits Ruling ).