Government pension agency braces for effects of recession

WASHINGTON (AP) — The deepening recession spells trouble for a little-known government corporation that insures the pensions of 44 million workers and retirees.

The Pension Benefit Guaranty Corp. already has an $11 billion deficit that seems sure to grow larger as Corporate America suffers through the worst economic crisis since the Great Depression.

With companies reporting shortfalls in their pension funds, it’s all but certain that the PBGC will be forced to take over the pension plans of a rising number of bankrupt businesses.

That means more red ink at the corporation before things possibly can improve.

The future financial health of the agency is hard to forecast. It is hinged on interest rates, the length of the recession and the PBGC’s own luck in playing the market, where it has billions invested.

The agency has $63 billion in assets. But it is obligated to spend $74 billion on pension benefits in the coming years. The PBGC might have time to rebound, but over the long term it might become insolvent and require a bailout.

“Someday — probably more than 20 years from now — there’s a significant chance that somebody is going to have to pay the piper,” said former PBGC Director Charles E.F. Millard, a Bush administration appointee who stepped down Jan. 20 when Barack Obama became president. “In the near- to medium-term, there will be no need for a bailout of PBGC.”

The PBGC quietly operates in a brick office building a few blocks from the White House. Its fate is important to the workers covered by the more than 29,000 employer-sponsored benefit pension plans it insures, and to all taxpayers who could be asked to foot the bill if its financial picture worsens down the road.

Congress created the PBGC in 1974 to guarantee the retirement security of workers covered by defined benefit pension plans. These traditional plans, which pay a specified monthly benefit at retirement, are being phased out as companies turn to 401(k)-style programs that require workers to make contributions and shoulder investment risks. The PBGC, which receives no tax dollars, gets its money from premiums paid by companies that sponsor the pension plans, along with revenue from its investments.

The corporation’s balance sheet has taken heavy hits in recent years. Nine of the 10 largest pension plan terminations in PBGC’s history, including United Airlines, Bethlehem Steel and Kaiser Aluminum, have occurred since 2001.