WASHINGTON — The deficit at the government's pension insurance program grew by $300 million from April through July, reaching $5.7 billion as the number of bankrupt retirement plans it must take over kept on climbing.
The cash-strapped Pension Benefit Guaranty Corp. will be responsible for paying a record $2.5 billion benefits to nearly 1 million people in the budget year that ends Sept. 30, the agency's executive director told Congress on Thursday. That compares with a payout of $1.5 billion in 2002.
Changes to pension funding rules and to the agency itself, which was designated as "high risk" by congressional investigators, are needed soon, Steven Kandarian told the House Education and the Workforce Committee.
"We should not pass off the cost of today's pension problems to future generations," Kandarian said. "If companies do not fund the pension promises they make, someone else will have to pay."
The agency estimates that almost 80 percent of the 32,000 pension plans offered by single private employers are underfunded. The projected deficit for all of those plans was more than $400 billion as of last year — a record, Kandarian said.
The agency's financial troubles stem from an increase in the number of large, failing plans it has been forced to take over from struggling private employers. The shortfalls have been concentrated in the airlines, steel and manufacturing industries.
The agency is funded with premiums paid by companies that sponsor pension plans and returns on those investments. It receives no tax dollars.
Low interest rates, the sluggish economy, stock market losses and an increase in retirees all have hurt the private pension system. Fewer employers are choosing to offer such plans, which promise a monthly benefit to their workers who are not required to contribute. Current law also allows private companies to avoid making minimum contributions to their plans for years.
Also, workers usually are unaware of the shortfalls in their retirement plans because they are denied access to the financial information.
Currently, when a pension plan is underfunded by $50 million or more, the employer is required to file certain information with the PBGC. But that information is exempt from the Freedom of Information Act. Even Rep. George Miller of California, the top Democrat on the House committee, was denied access because it requires a request from the entire committee.
Miller and Rep. Lloyd Doggett, D-Texas, have introduced a bill to allow workers access to the information. The bill would require plans that are less than 90 percent funded to disclose that to plan participants. The agency supports the measure.
"Companies have been permitted to publish in their annual reports rosy financial pictures about their pensions, while at the same time running the plan into the ground through reductions and freezes in pension contributions," Miller said.