WASHINGTON — Congress must overhaul the system of insuring private pensions to avoid a possible savings-and-loan-style bailout by taxpayers, the head of the federal agency that backs corporate pensions said Monday.
The Pension Benefit Guaranty Corp. is not in an immediate cash crunch but eventually will be unable to meet its obligations to retirees if the law is not changed, the agency’s executive director, Bradley D. Belt, said in a speech.
“Needed reforms grow more costly the longer we wait to implement them,” Belt said in his remarks to an accounting industry conference. “Trying to maintain the status quo is not going to save the (corporate pension) system.”
For hundreds of thousands of workers whose pension plans were terminated by their companies, he said, “it is not a future issue, it is a here-and-now issue.”
Belt spoke a week after the House appeared to abandon plans to move on major legislation to shore up the private pension system in the waning days of this congressional session. Supporters of the bill say they still hope for House action, but prospects are unclear.
The Senate, on a 97-2 vote, recently approved its version of the legislation that tightens rules for companies that underfund their employee pension plans while strengthening the future financial viability of the federal pension agency.
The PBGC, which insures the pensions of some 44 million workers, reported last month that its deficit was $22.8 billion in 2005, as big airlines and other companies in bankruptcy dumped their pension liabilities.
That means the money available to pay benefits to retirees whose pension plans are taken over by the agency is eventually going to run out unless Congress acts, Belt said.
Some experts estimate that could occur in 16 years or so.
Citing the thrift bailout of the late 1980s and early 1990s, which cost taxpayers around $130 billion, Belt warned that without an overhaul of the pension system, a similar taxpayer bailout is “a very real possibility.”
A week ago, President Bush urged Congress to pass private-pension legislation.
Belt, in his speech to the conference of the American Institute of Certified Public Accountants, also criticized companies’ accounting for their pension costs — an area being examined by federal securities regulators. Some companies are said to be using artificially high estimated rates of return on pension assets to lower their pension costs.
Using the “alchemy” of accounting standard, some companies are turning pension expenses into illusory sources of profit on their balance sheets, Belt said.