ASHINGTON, March 11 — The Bush administration is drafting proposals to discourage companies struggling to pay for traditional worker pension plans from dropping them, the head of the agency that insures pension plans told Congress today.Posted on 03/11/2003 11:55:33 PM PST by JohnHuang2
ASHINGTON, March 11 — The Bush administration is drafting proposals to discourage companies struggling to pay for traditional worker pension plans from dropping them, the head of the agency that insures pension plans told Congress today.
Steven A. Kandarian, executive director of the agency, the Pension Benefit Guaranty Corporation, told the Senate Finance Committee today that inadequate requirements had led to a $300 billion shortfall in the assets of company plans. He said his agency's record $3.6 billion budget deficit for last year would deepen as it tried to rescue failing plans.
"We could do nothing and hope that the system will self-correct," Mr. Kandarian told the committee. "This approach risks putting off today's problems to the next generation."
Of the companies in the Standard & Poor's index of 500 stocks, 360 have so-called defined benefit pension plans, which provide annual lifetime payments to workers after they retire. Stock market declines in the last three years have caused the funds of companies in the S.& P. to lose more than $200 billion in value, according to studies by actuaries and several investment banks, including Credit Suisse First Boston and UBS Warburg.
The committee's Republican chairman, Charles Grassley of Iowa, said he was worried about the financial viability of the guaranty corporation, which is responsible for some of a company's pension obligations when it files for bankruptcy protection. The agency's operations are financed by businesses, which pay pension insurance premiums, and not from general tax revenue.
In January, the agency reported an $11.4 billion loss for the fiscal year that ended Sept. 30 — the biggest in the agency's history — after it assumed liability for pensions at bankrupt steel and airline companies.
Mr. Kandarian said that it would take the agency 12 years to take in enough premiums to pay for the losses incurred in 2002 alone.
The agency is working with the Treasury, Labor and Commerce Departments to draft recommendations to be submitted to lawmakers. He declined to specify the timing.
The recommendations will be aimed at preventing financially troubled companies from transferring the cost of underfinanced plans to healthy ones, Mr. Kandarian said. Changes in federal pension laws should ensure that pension plans are "adequately funded over a reasonable period of time," he said.
One possible recommendation would be to toughen disclosure rules about the financing status of pension plans, he said. Securities and Exchange Commission officials said last week that they were concerned that companies were obscuring their pension losses in federal filings and giving investors incomplete information.
"Our experience tells us that those disclosures are not adequate," Mr. Kandarian said.
Mr. Kandarian told the panel that while his agency faces long-term deficits, it is not at risk of running out of cash right away. Last year's loss took the agency to a $3.6 billion deficit for fiscal year 2002 from a $7.7 billion surplus at the end of 2001.
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