NU Online News Service, Sept. 15, 2003, 5:31 p.m. EDT – The federal government might have to bail out the Pension Benefit Guaranty Corp. insurance program for single-employer defined benefit pensions unless Congress finds a way to reform the defined benefit pension system, according to PBGC Executive Director Steven Kandarian.
Kandarian, whose agency insures defined benefit pension plans, spoke at a pension reform hearing organized by a subcommittee of the U.S. Senate Governmental Affairs Committee.
PBGC-backed, single-employer plans now have $350 billion less than they need to fund the pension benefits that they have promised plan participants, Kandarian told the subcommittee, according to a written version of his remarks.
The current level of underfunding compares with underfunding of just $50 billion in December 2000, Kandarian said.
The PBGC itself has swung to a $5.7 billion deficit in its single-employer pension insurance program at the end of July, from a surplus of $7.7 billion at the end of fiscal year 2001, Kandarian said.
“In the worst case,” Kandarian said, “PBGC’s deficit could grow so large that the size of the premium increase necessary to close the gap would be unacceptable to responsible premium payers. If this were to occur, Congress could call upon U.S. taxpayers to pick up the cost of underfunded pension plans through a federal bailout of PBGC. In essence, all taxpayers would shoulder the burden of paying benefits to the 20% of private-sector workers who still enjoy the security of a defined benefit plan.”
The defined benefit pension system is suffering from a drop in interest rates and stock returns, but it also faces the rapid aging of the pool of defined benefit plan participants as well as weaknesses in pension funding rules, Kandarian said.