Do You Know Where Your Pension Is?

Subtitle: Insurance is No Assurance

First the steel industry, then the airlines, and now, the automotive industry? The Pension Benefit Guarantee Corporation (PBGC) has its hands full. As stated below, this is the federal agency that insures employee pensions when companies can’t meet their obligations. Don’t hold on to that warm, fuzzy feeling for too long, though because chairman of the PBGC, Elaine Chao states in the company’s 2004 Annual Report that, although the company has been able “to continue paying participants their guaranteed benefits for a number of years,…it is clear that the Corporation does not have sufficient resources to meet all of its long-term obligations.” This could potentially affect more than 45 million Americans whose pensions are insured by the PBGC.

PBGC’s annual report reveals that single-employer programs (those sponsored by only one company, such as GM) recorded a deficit of $23,305 billion and multi-employer programs (sponsored by more than one unrelated company) were in the red for $236 million. The deficits were largely caused by the collapse of the steel industry in 2003, from which the PBGC assumed over $5 billion in pension liabilities. US Airways caused another $3 billion burden for the PBGC and problems at United Airlines will add to that. (Click here for a CBO paper titled The Risk Exposure of the PBGC). The PBGC’s estimate of ‘reasonably possible’ plan terminations (due to corporate failures) in the near future is an additional $96 billion assumption of pension liabilities. Another big part of the problem is that the PBGC was formed to insure pension benefit plans of individual companies, not entire industries. Now, the automotive industry may add to the heap. Just within the past couple of days, both Ford Motor Co. and Dana, another auto parts supplier, announced restructuring plans in efforts to drastically reduce costs. The Ford article mentions that Ford’s decision to limit its number of vendors may cause problems for more auto parts suppliers in the near future.

This past September, the Senate HELP Committee approved a pension reform bill that would supposedly aid in funding the PBGC. However, most changes would be phased in over the next ten years. Additionally, the changes would increase the complexity of accounting for and funding pensions for businesses, which could cause more companies to turn from defined benefit plans to defined contribution plans, such as 401k’s, which are not insured by the PBGC. The proposed act can be viewed here (then search for bill number H.R. 2830) in its entirety. It appears that it’s been put on hold for 'further consideration' until no later than November 4.