MolaKule
Staff member
quote:
Crisis looms in funding for U.S. corporate pension plans
The Detroit News 08/26/04
author: Rachel Beck
(Copyright 2004)
NEW YORK--The corporate pension crisis seems to be going from bad to worse. First, companies struggled to come up with the money to cover their benefit obligations, and now they want to ditch their plans altogether.
The latest twist in this mess comes from UAL Corp.'s United Airlines. It wants to terminate its employee pension funds to secure loans it needs to get out of bankruptcy -- a drastic move that would represent the largest pension default ever by a U.S. company.
Should that happen, competing airlines may try to do the same, and it could easily extend to other industries, too. And who would be left with the cleanup? Taxpayers, of course.
"I'm deeply concerned that more and more employers may decide that the rational thing to do ... is to follow others to the exit and get out of sponsoring a pension plan before it becomes an impossible burden," said James A. Klein, president of the American Benefits Council, a Washington-based trade group representing the employee benefits system.
A pension plan is considered underfunded when its obligations -- what it owes to retirees -- exceed its assets by at least 10 percent. At that point, companies must cover the difference.
Pension plans of the 362 companies in the Standard & Poor's 500 index offering defined benefit plans went from being overfunded by $280 billion in 1999 to being underfunded by $165 billion last year, according to S&P. And that was a $54 billion improvement from 2002, thanks to rebounding stock prices.
The government has tried to help ease the pension burden. Airlines and steel companies have been granted a two-year reprieve that allows them to only pay 20 percent of what is currently required.
But it still isn't enough for some companies.
United announced last month that it would skip payments to its four pension funds while it restructures under bankruptcy protection, and later disclosed in a regulatory filing that it would "likely" have to terminate those plans.
Should United successfully convince a bankruptcy court that it needs to terminate its massive plans, which would wipe a huge liability off of its books, there is no telling what kind of ripple effect it could set off in the airline business -- and beyond.
US Airways could be next. The troubled carrier wants government permission to stretch out about $68 million in contributions it owes to the pensions of its mechanics and flight attendants over the next five years, rather than the next 18 months.
If more companies move to dump their pension plans, it would put increasing pressure on the already-strapped Pension Benefit Guaranty Corp., the government agency that insures pensions earned by 44 million workers and retirees participating in 31,000 plans.
The agency, which is funded through premiums charged to employers and investment returns, saw its deficit balloon to a record $11.2 billion in 2003. And in just the last three years, the PBGC has accumulated $15.9 billion in claims, more than twice as much as the $6.1 billion it assumed between 1980 through 1999, according to a new report by the Washington-based Cato Institute.
With the PBGC facing such huge burdens, the government may have no choice but to go forth with a multibillion-dollar taxpayer bailout. That would thrust the pension crisis out of corporate America and into everyone's wallet.
