- The Washington Times - Tuesday, June 7, 2005


Lax reporting rules created by Congress, and corporate America’s eagerness to take advantage of them, have triggered a spike in underfunded pension plans largely unknown to millions of workers and retirees, the Senate Finance Committee was told yesterday.

United Airlines may have set an unsavory example for others in the airline industry, committee members were told during a hearing on Capitol Hill. After declaring bankruptcy in 2002, the airline won court approval last month to shed $9 billion in pension obligations — shifting responsibility to the federal Pension Benefit Guaranty Corp.

That has contributed to a $23.3 billion deficit at the agency, which insures private pension plans, and triggered fears of another massive taxpayer bailout similar to the 1980s savings and loan crisis. The agency’s head told senators the number of pension plans that are more than $50 million short of promised benefit levels has risen from 221 in 2000 to 1,108 in 2004. Those funds have an average of just 69 percent of promised benefits on hand.

“The law represents the floor of acceptable behavior, not the desired state,” David Walker, head of the nonpartisan Government Accountability Office, told the committee. “Unfortunately, when it comes to pension funding, too many high-risk companies do what is legally permissible — rather than what is right — when deciding how much money to put into their pension plans.”

The statistics and comments prompted calls for swift legislative action this year, including adopting one of the bills pushed by President Bush, Sen. John D. Rockefeller IV, West Virginia Democrat, or Rep. John A. Boehner, Ohio Republican. In general, the bills create schedules to eliminate the funding shortfalls and revise rules that allow companies to mask underfunding. They also provide greater transparency so that information about the funds now available only to the PBGC is shared with the general public.

“The facts are alarming. The time to act is now. Tinkering with the current rules won’t do. Another temporary Band-Aid won’t do,” said Sen. Charles E. Grassley, the Iowa Republican who chairs the Finance Committee.

The hearing took place against the backdrop of the high-profile debate in Washington about overhauling Social Security. The federal retirement program is one-third of the “three-legged stool” that financial planners suggest workers erect for their retirement.

The other legs are money invested by workers in 401(k) plans, individual retirement account or other tax-preferred investment plans, as well as corporate pension plans in which an employer typically pays a defined benefit to a worker during his retirement.

About 34 million people — roughly 20 percent of the nation’s work force — expect to receive payments from their employers through defined-benefit plans.

The risk those workers face was highlighted by the United Airlines ruling, in which the PBGC assumed responsibility for paying pensions to 120,000 current and former airline employees. While they were owed more than $9 billion in pension benefits, they will receive only about two-thirds of that amount — $6.6 billion — because of the agency’s insurance limits.

A PBGC report released yesterday showed that pension rules allowed United Airlines to underfund its plan without notifying its employees, paying extra insurance premiums or accelerating its pension payments.

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