PBGC Airlines' woes imperil pension fund

Taxpayers may be forced to bail out the fund, two top officials said.
THE DALLAS MORNING NEWS
WASHINGTON -- Financial problems in the airline industry are imperiling the federal fund that backs pension plans for 44 million Americans.
Two senior government officials delivered that dour forecast for the Pension Benefit Guaranty Corp. this week, saying taxpayers may need to bail out the fund if airlines continue to use bankruptcy to avoid funding their retirement plans.
"We have a hole, and it has been getting deeper," Bradley Belt, executive director of the PBGC, told reporters after a Senate hearing.
At year-end, Belt said, the PBGC had estimated its exposure to the airline industry at $31 billion. The bankruptcies of United Airlines Inc. of Chicago and US Airways Inc. of Arlington, Va., as well as the likely Chapter 11 filing of Delta Air Lines Inc. of Atlanta have all put financial strain on the fund.
And he told reporters that the White House and Congress must enact pension law reforms early next year to help head off a crisis for the agency, which insures 31,000 pension plans for workers and retirees.
"If we do not take action, it increases the risk that Congress would be called upon," Belt said.
The fund is doling out $3 billion annually to pay a portion of the benefits due to retirees whose companies have failed. But it's taking in only $1 billion in premiums and other revenue. At the end of 2003, the fund had a record deficit of $11.2 billion. It is expected to report a significantly higher shortfall for 2004.
For the near term, Belt said the PBGC has the resources to make monthly payments to retirees who were enrolled in pensions at failed companies. But he would not rule out a future bailout.
"At the same time, the long-term solvency of the pension insurance program is at risk," he said.
Latest of many problems
David Walker, the U.S. comptroller who heads up the Government Accountability Office, said the financial burden unloaded by the bankrupt airlines is only the latest hit to the agency. Pension defaults in steel, automotive parts manufacturing and other industries have taken their toll.
"The combination of several carriers facing current or potential bankruptcy, each with large underfunded pension plans, presents a threat to the PBGC," said Walker, whose agency serves as a watchdog for Congress.
Sen. John McCain, R-Ariz., chairman of the Senate Commerce, Science and Transportation Committee, said he was not "usually given to alarmist statements," but predicted: "There is a looming train wreck."
Unlike most bank and S & amp;L deposits, the PBGC's obligations are not backed by the federal government. Even so, most experts agreed that allowing the PBGC to fail -- leaving thousands of retirees with no pension benefits -- would be politically unthinkable.
Indeed, Sen. Barbara Boxer, D-Calif., joined other Democrats and Republicans in talking about the human toll when companies fail and employees get only a portion of their pension benefits.
"I see what happens to people, and the looks on their faces is sheer fear. It's just sickening," Boxer said.
Duane Woerth, president of the Air Line Pilots Association, responded: "They just feel like they have had the rug pulled out from under them. When you turn 65 ... you cannot start over."
Employees at American Airlines Inc. of Fort Worth, Texas, are in somewhat better shape than workers at many other legacy airlines.
At the end of 2003, American reported that it had funded its pension plan with 76 percent of the funds needed to pay future benefits.