WASHINGTON -- Deficits at the government's pension insurance program surged to a record $11.2 billion in 2003 - three times larger than any previous shortfall, with the outgoing director warning Thursday that taxpayers could be called on for a bailout.
Steven Kandarian, executive director of the Pension Benefit Guaranty Corp., said the program wasn't yet in a financial crisis. But he urged Congress to act soon to reform the nation's private pension system, which is being squeezed by low interest rates, a subdued stock market and laws that do not require employers to maintain full funding levels in their retirement plans. Underfunding for all pension plans is estimated at more than $350 billion.
The agency's single-employer program posted a net loss of $7.6 billion for its 2003 financial year ending Sept. 30, added to a $3.6 billion shortfall in 2002.
Falling interest rates and a record number of pension plan bankruptcies - mostly in the steel industry - sent the program deeper in the red.
PBGC still can continue to pay retirement benefits to workers and retirees enrolled in bankrupt plans, but the growing financial troubles threaten "the agency's ability to continue to protect pensions in the future," said Kandarian, who announced last week his plans to leave after more than two years at the helm.
Kandarian warned that "the taxpayer might be called upon to make those payments" to workers if the PBGC falls further into debt, a remedy he said he does not favor.
His agency, the Labor and Treasury departments and others are crafting plans for sweeping reforms of the system. Kandarian said the plan is in its final stages, and could be offered to Congress soon.
PBGC was created in 1974 to guarantee payment of some benefits earned in traditional pension plans, which are offered by employers and promise workers a set benefit based on salary and years of service. Workers are not required to make contributions as they do in 401(k) plans.
The agency is financed by insurance premiums paid by companies that sponsor pension plans and by PBGC's investment returns.
PBGC took over 152 pension plans in 2003 covering 206,000 people, up from 144 plans and 187,000 participants the previous year. It paid a record $2.5 billion in benefits last year, an increase of nearly $1 billion.
PBGC also guarantees pension benefits earned by workers in multi-employer pension plans, which often are collectively bargained by employers and unions. For the first time in more than 20 years, PBGC's multi-employer program rang up a deficit - $261 million, the largest ever.
Rep. John Boehner, chairman of the House Education and Workforce Committee, called the PBGC's growing deficit "startling."
He pledged to work on a comprehensive reform package this year that would "strengthen the defined benefit system for workers and employers and put the PBGC on sound financial footing so that it can protect the pension benefits of American workers who rely on defined benefit plans for their retirement security."
The House already has approved nearly $26 billion in temporary relief to companies struggling to keep up with pension plan payments, while lawmakers consider permanent reforms. The Senate is expected to take up the measure when Congress returns next week.
The White House supports the temporary relief, but has criticized measures aimed at airlines that would let companies severely cut or halt the payments they are required to contribute to their plans.
The PBGC has said a Senate Finance Committee plan to waive contributions to severely underfunded plans for three years would cause shortfalls in those plans to grow by $40 billion.