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FreeRepublic , LLC PO BOX 9771 FRESNO, CA 93794
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It is in the breaking news sidebar! |
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Posted on 10/14/2003 10:52:36 AM PDT by Starwind
UPDATE - U.S. pension agency's deficit grows to a record Tuesday October 14, 1:23 pm ET
By Susan Cornwell
WASHINGTON, Oct 14 (Reuters) - The deficit at the U.S. agency that insures pensions grew to a record $8.8 billion at the end of August, the agency's director said on Tuesday, and he warned that U.S. taxpayers might ultimately have to bail out the agency.
The Pension Benefit Guaranty Corp., which insures retirement plans for 44 million current workers and retirees, had forecast a $5.7 billion deficit earlier this year.
The PBGC's shortfall "is the largest in its history and is still growing," PBGC Director Steven Kandarian said in testimony to the Senate Special Committee on Aging.
Kandarian blamed the deficit on record pension underfunding by American companies and the recent failure of a number of pension plans, especially in the steel and airline industries.
Underfunding in the nation's single-employer plans exceeds $350 billion currently, he said.
The PBGC's $8.8 billion deficit through August is confined at the moment to its single-employer insurance program.
However, Kandarian said the financial position of the PBGC's multi-employer insurance program is also weakening and it is likely to show a deficit for the first time in September.
Congress needs to make fundamental changes to pension funding rules that would put the plans on a path to better financial health, and the Bush administration is working on comprehensive reforms, Kandarian said.
"If companies do not fund the pension promises they make, someone else will have to pay -- either workers in the form of reduced benefits, other companies in the form of higher PBGC premiums, or taxpayers in the form of a PBGC bailout," Kandarian said.
The PBGC collects premiums from companies that sponsor defined benefit plans -- traditional pensions that promise a fixed payout at retirement. The agency takes over failed plans and pays out benefits, although not always at the same level formerly promised by the companies involved.
"All taxpayers would shoulder the burden of paying benefits to the 20 percent of private sector workers who currently enjoy the security of a defined benefit plan," Kandarian warned of a PBGC bailout.
Last week the U.S. House of Representatives approved a stopgap measure offering companies a more lenient formula for calculating pension funding now, while Congress searches for a long-term solution to the national shortfall in pension plans. Similar proposals are pending in the Senate.
The House-passed bill would cut companies' pension obligations by $25.5 billion over the next two years.
Another reason we should all be concerned with the jobless plight of coworkers and misleading financial results and accounting.
And that's how this mess got started and gets worse. Never a good time to account for pension funding rationally, but always a good time to loosen it.
I prefer to leave that to the employers and employees.
However, as an investor and taxpayer, there is no excuse for a lack of GAAP/FASB standards or corporate governance that permits companies to "assume" unrealistic growth of pension asset value and treat that assumed growth as income on the books, while leaving pension funding liabilities off the books.
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FreeRepublic , LLC PO BOX 9771 FRESNO, CA 93794
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It is in the breaking news sidebar! |
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Ultimately DB plans should be left to tank completely as would 401(k) and IRAs and other DC plans. The challenge is that the unions representing the employees have way too much power for such a thing to occur.
The alternative is to allow Joe Lunchbox to participate in a DB plan funded with guranteed insurance products, not equities. Right now, a small business owner can fund such a plan for 10 to 15 years and recieve a maximum payout of $160,000 per year. The plan is qualified and thus it can defer taxes on contributions (up to 200,000, in come cases more) and growth. There are additional asset protections available under plans covered by ERISA.
The max PBGC will payout now is approximately $30,000 per year if it takes a plan over, not quite as good as the 160, 000 max, plus it won't go down and we as tax payers don't have to bail it out. I'd love to see congress study allowing folks in crashing DB plans to convert to an insurance funded plan, could be we could prevent lots of grief in the future!
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