Pension Agency's Risk Is Being Questioned

The investigative arm of Congress is expected to announce today that it has added the federal agency that insures pension plans to its list of government operations at "high risk."

David M. Walker, the comptroller general, was scheduled to testify Tuesday about the financial condition of the pension agency before the House committee on Education and the Workforce. The agency's solvency has deteriorated rapidly as the government has taken over a number of large, failing pension plans.

The testimony of Mr. Walker, who leads the General Accounting Office, was canceled for unexplained reasons, but he is expected to disclose the new, high-risk status of the Pension Benefit Guaranty Corporation today. He declined to comment Tuesday evening.

The House is considering a bill that would change pension calculations, providing companies with some relief for at least three years, and make the agency look healthier. The bill does not include the administration's alternative proposals to strengthen corporate pensions.

Separately, a senior official of the Bush administration said the listing would apply to the section of the pension agency that insures plans offered by single employers and not multiemployer plans, which have different federal requirements. The single-employer segment makes up the vast majority of the agency's obligations.

In April, the pension agency disclosed that its deficit had grown to $5.4 billion and that it had "reasonably possible claims" of $35 billion at the close of its last fiscal year. Almost a third of those claims, or $11.4 billion, involved the pensions of airline employees.

The agency measures "reasonably possible" insurance claims as the total deficit of all insured pension plans whose corporate sponsors have bond ratings below investment grade. Such claims are thought to have grown significantly since the agency took its most recent measure in September.

Mr. Walker is a former acting director of the pension agency and a former assistant secretary of Labor for pension affairs.

The General Accounting Office has maintained a list of "high risk" government operations since 1990. Other issues on the high-risk list include the failure of the Federal Aviation Administration to adequately modernize the air traffic control system and the inability of the Internal Revenue Service to enforce certain provisions of the tax code.

When it designates a unit of government "high risk," the accounting office customarily makes recommendations for improvement. Some have led to hearings and legislation. The pension agency finances its insurance operations by charging premiums to all companies that sponsor pension plans.

Many companies enjoyed large pension surpluses during the stock market boom and now have deficits, and some sponsors must now make big contributions to comply with the law. There are fears that if the pension agency raises its premiums for all companies, those with healthier funds will drop out of the system. That would make the agency's finances even worse.

If you have a pension with one of the big corporations and you are depending on the PBGC, you're going to have some challenges. One of the programs my firm offers is a "pension" transfer from a traditional corporate pension (most of whose funds are significantly under funded or broke) to a guranteed pension using life insurance products. This is old stuff and was pretty "unmarketable" three years ago due ot low rates of return. Now they are a hot item even at 4-5% return since due to market conditions and the potential for PBGC to increase insurance rates and low benefits (maximum $3,664.77 per month ($43,977.24 yearly) for a participant retiring at age 65).

The "low benefits" are in respect to mid and upper level managers that are currently recieving much higher pension promises. The number may go lower as more company pension plans evaporate and the load on the system increases. This will potentially drive that maximum number down to where it will start hurting the blue collar and lower level white collar worker.

So all in all, the next 15 to 20 years will see social security and PBGC either tank or cause extrodinary (and conficatory) increases in federal payroll taxes.

One of the programs my firm offers is a "pension" transfer from a traditional corporate pension (most of whose funds are significantly under funded or broke) to a guranteed pension using life insurance products.

Who pays the 'premium' on a transfered pension? What happened to the prorata share of the pension fund due the employee?

Typically the executive pays his premium unless he is in a position to negotiate payments by the company. The balance of the fund may be transferrable to the new pension plan but that is determined by the rules governing the company pension plan (rollovers, early distributions etc.). As usual, the answer is "it depends."

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