Pension Agency May Go Broke By 2020


Sep 22, 2002
September 14, 2004
Pension Agency May Go Broke by 2020

Filed at 4:08 a.m. ET

NEW YORK (Reuters) - The U.S. government agency that insures corporate pensions will run out of money in 2020 if current financial conditions persist, imperiling the checks of millions of retirees, a new independent study shows.

The analysis of the Pension Benefit Guaranty Corp. suggests that, without a taxpayer-funded government bailout, ``retirees would suffer strongly from cash exhaustion'' at the agency, which pays benefits to some 1 million Americans and insures private pensions of about 43 million more.

If it functioned as a private insurer, the pension agency would already be deemed ``insolvent,'' the 29-page report by the Center On Federal Financial Institutions, dated on Monday, said.

The report was issued amid concern that big U.S. airlines -- including two under bankruptcy protection, UAL Corp.'s (UALAQ.OB) United Airlines and US Airways Group Inc.-- might default on their pension obligations.

The agency said in June that the airline and steel industries had accounted for more than 70 percent of claims since its insurance program was created in 1974.

``The present level of premiums would not cover expenses, much less promised pension payments, once invested assets were exhausted,'' it said.

Concern about the pension agency comes as many Americans worry a bout the long-term health of Social Security, the government's vast mandatory savings program for retirees.

Social Security trustees earlier this year estimated the program's trust fund assets would likely be exhausted in 2042.


The new report said a quick way to fix the pension agency's problems would be ``a $14 billion rescue now (or more later).'' The agency's programs ended 2003 with about $35 billion of assets, its annual report shows.

Otherwise, the new report said, the government might carve $720 million from annual premiums, or raise targeted annual investment returns to 7.8 percent from 5 percent. It considers the lower level reasonable given the agency's investment guidelines and current market conditions.

But it said carving $720 million from premiums might lead to higher premium rates, and said raising returns would require sharply higher interest rates or a big, successful stock market bet. A losing bet would aggravate the problem.

Although new pension claims can defer or speed up the crisis, ``new claims dig a bigger hole for PBGC, unless covered by adequate premiums,'' the report said. ``Trying to defer the cash crisis through new claims is worse than borrowing from Peter to pay Paul.''

The worst-case scenario would be if U.S. airlines defaulted on their pension obligations, resulting in the agency being wiped out by 2018, the report said. Even if fewer pension plans than expected were to fail, the agency would likely be out of cash by 2023, it said.

The report is available online at
The 20 most underfunded pension plans
Company Market cap Underfunded amount at 12/31/03 Ratio of amountunderfunded to market cap
Delta Air Lines (DAL, news, msgs) 645 million 5.65 billion 8.77
Northwest Airlines (NWAC, news, msgs) 746 million 3.74 billion 5.03
AMR Corp. (AMR, news, msgs) 1.35 billion 2.66 billion 1.97
Continental Airlines (CAL, news, msgs) 595 million 1.07 billion 1.81
AK Steel Holding (AKS, news, msgs) 721 million 1.18 billion 1.65
Goodyear Tire & Rubber (GT, news, msgs) 1.92 billion 2.75 billion 1.44
W.R. Grace (GRA, news, msgs) 381 million 361 million 0.95
Delphi (DPH, news, msgs) 5.3 billion 3.97 billion 0.75
Visteon (VC, news, msgs) 1.3 billion 870 million 0.65
McDermott International (MDR, news, msgs) 708 million 410 million 0.58
Alaska Air Group (ALK, news, msgs) 558 million 311 million 0.56
British Airways (BAB, news, msgs) 4.54 billion 2.4 billion 0.53
Crompton (CK, news, msgs) 684 million 337 million 0.49
Ispat International (IST, news, msgs) 2.17 billion 965 million 0.44
Vitro (VTO, news, msgs) 292 million 127 million 0.44
Ford Motor (F, news, msgs) 26.9 billion 11.68 billion 0.43
ArvinMeritor (ARM, news, msgs) 1.37 billion 561 million 0.41
Navistar International (NAV, news, msgs) 2.5 billion 994 million 0.40
Standard Register (SR, news, msgs) 313 million 123 million 0.39
Olin (OLN, news, msgs) 1.2 billion 457 million 0.38
kiowa said:
The 20 most underfunded pension plans
Company Market cap Underfunded amount at 12/31/03 Ratio of amountunderfunded to market cap

You left off the number 1 underfunded pension: UAL, which is underfunded by about $6 to $8 billion (depending on who you ask) and has a market cap of about ZERO.