Pension agency chief says remedies exist for fund woes
6/15/2005WASHINGTON - Bradley Belt used to toil in near anonymity.
But suddenly the executive director of the federal agency that insures pensions is in constant demand as worried Americans - and members of Congress who now demand his testimony on a weekly basis - seek answers to their questions about whether the country's pension program is falling apart.
Mr. Belt's agency, the Pension Benefit Guaranty Corp., insures retirement benefits for 44 million workers in 31,000 private pension plans and actually cuts checks for another million retirees whose companies folded.
When United Airlines was granted pension relief in federal bankruptcy court last month - as also happened earlier with bankrupt US Airways - it meant that Mr. Belt's agency will have to shoulder the expense of billions of dollars of the airlines' obligations to retirees, who nonetheless will get less pension than they originally were promised.
Now Northwestern and Delta are saying the government should do the same for them, for the sake of fair competition. Mounting financial troubles in the auto industry and mounting bankruptcy filings by auto parts companies are fueling speculation that ever more companies will make the same argument.
But the Little Agency That Could - set up by Congress to make certain that employees of companies that go out of business don't lose their pensions - is in trouble. It says it is already $23 billion in the hole because so many big companies have underfunded their pension responsibilities. The Congressional Budget Office says the shortfall is closer to $100 billion.
Yesterday, Mr. Belt answered questions from reporters.
Q. Is the defined benefit pension [benefits for a lifetime after retirement] in jeopardy in America?
A. This is a story that remains to be told. A lot depends on the choices and policies Congress makes in the weeks and months ahead. There have been fundamental changes in pensions. Most employees don't have the perspective they'll be with the same company for the next 30 or 40 years, and fewer expect a predetermined share of their salary in retirement.
Q. Are new companies setting up traditional pension plans for employees?
A. No. It's not surprising that no new defined-benefit plan has been set up in the last several years. It is difficult to imagine a CEO setting up a traditional pension plan. Corporations have to write checks for wages and for health benefits. They don't have to write checks for deferred compensation, and unions began granting contract concessions in exchange for deferred compensation. But there's no such thing as a free lunch. There'd be no problem if pension funds were fully funded - with cash contributions [not IOUs].
Q. Are the obligations of the pension agency underpinned by the full faith and credit of the federal government?
A. No.
Q. Some members of Congress want taxpayers to step in to take care of retirees if their companies go belly up. But only 20 percent of the active work force has defined retirement benefits. Why should taxpayers bail out the retirees whose companies didn't keep their promises while other companies do?
A. There are tradeoffs. It's a question of who pays. At the end of the day, do we simply cut off the spigot at the PBGC and not cut the checks to those we owe? There are losses in the system now. There will be further losses. If we enact strong funding reforms, the losses will be fewer. There's a direct relationship between funding losses and the premiums paid by plan sponsors of which they complain. If Congress determines not to raise premiums to a level that actually fills the hole do we then target the American taxpayer and say you're off the hook now? That's what the current law allows. The current law leads to bad outcomes.
Q. Why are we in this situation?
A. The numbers are so big because of the decade-long bull market - the size of pension plans grew substantially. Then, companies increased the amount of investment risk they're taking in their pension plans. Accounting firms encouraged this because it turned pensions into profit centers. Companies got addicted to having this forward-deferred compensation show up on the income statement as net income.
Q. What's the answer?
A. We need to change current law. We believe if you get rid of the financial overhang [shortfall], if you simplify the regulatory framework and you resolve the legal uncertainties with respect to cash balance plans, you level the playing field. You can at least stabilize the hemorrhaging that is occurring in the current system, and you may be able to turn the corner.
Contact Ann McFeatters at:
amcfeatters@nationalpress.com
or 202-662-7071.