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Pensions, Protected

Some alarm bells are ringing over the financial health of a federal agency set up in 1974 to protect the retirement pensions of employees in the private sector.

The Pension Benefit Guaranty Corporation protects the pensions of about 44 million workers vested in some 35,000 private benefit plans of the old-fashioned kind, before 401(k)s became popular.

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Like an insurance company, PBGC charges a premium - a basic $19 a year per worker - to participating businesses, and in return, it backs up their pension funds in case any of those businesses go bankrupt.

Its soundness is under scrutiny because of recent claims on its funds from several large companies going bankrupt in the current weak economy. United and US Airways, for instance, are coming to terms with bankruptcy, and may not meet promises to employees with underfunded pension plans. PBGC has already gone through an $8 billion surplus in one year, mostly due to the woes of major steel companies.

But the agency has mostly operated with a deficit for most of its history. Solving that may be a matter of time. The agency's financial projections assume rising interests rates.

With so many bankruptcies, however, it's fair to ask: What will PBGC do if the economy keeps dragging?

Perhaps it's time to raise the $19 rate, which hasn't changed in 13 years, though that runs the risk of some companies deciding not to offer pensions. Or healthy companies may ask to pay lower premiums so they won't subsidize weaker ones. PBGC is already wrestling with that issue.

Is it time for the agency to do a better job of risk assessment, acting more like a financial analyst than a rescue operation? That would require assessing the risks of each company, and deciding a reasonable, equitable premium base. Such a practice is not the government's role, in which case PBGC and Congress may need to decide if the agency's structure and purpose needs an overhaul.


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