Private-Sector Pension Meltdown
- By Jerry Laws
- Apr 01, 2003
WE'RE broke. Putting it more precisely, our retirement is busted, tapped out,
barely breathing on government life support. We know this from the jaw-dropping
$3.6 billion shortfall last year in the Pension Benefit Guaranty Corp.'s
insurance program for single-employer pension plans. Brace yourself, because the
numbers posted by our nation's private pension backstop look uncomfortably like
the meltdown of AOL Time Warner Inc.
PBGC's annual report said its insurance program "swung from a $7.73 billion
surplus at the end of fiscal year 2001 to a $3.64 billion deficit at the end of
fiscal year 2002." This $11.37 billion net loss was the largest in the agency's
"The PBGC has sufficient assets to pay benefits to workers and retirees for a
number of years," Executive Director Steven A. Kandarian said in a news release.
"But given the amount of underfunding in pension plans sponsored by financially
troubled employers, we must examine every available option to strengthen the
pension insurance program for the long term."
PBGC was created in 1974 to guarantee that workers in defined benefit pension
plans receive their basic benefits. About 44 million workers and retirees are
covered by pensions it now controls. (There are about 135 million employed
Americans, so the PBGC pensioners are equal to 25 percent of the entire U.S.
civilian workforce.) The agency is funded by insurance premiums from companies
that sponsor pension plans and by its own investment returns. Now PBCG's
investments have been pummeled, and it has been forced to take over several
steelmakers' big, underfunded pension plans. Airline pensions could be next. If
so, those insurance premiums may hit the roof.
Troubled by the numbers, the U.S. House of Representatives Education &
the Workforce Committee's chairman, John Boehner of Ohio, and Employer-Employee
Relations Subcommittee Chairman Sam Johnson of Texas immediately announced a
hearing to examine PBCG's financial health. "The goal of this process will be to
ensure both the financial integrity of America's defined benefit plans and the
PBGC itself," Johnson said.
PBGC's multi-employer program covers only 9.5 million participants, but it
posted a 2002 surplus of $158 million. Despite record losses and what PBCG
acknowledged is "continued exposure to a number of highly underfunded pension
plans," the single-employer insurance program had $25.43 billion of assets at
This article originally appeared in the April 2003 issue of Occupational Health & Safety.
Jerry Laws is Editor of Occupational Health & Safety magazine, which is owned by 1105 Media Inc.