United default further taxes federal agency
WASHINGTON — The pension default by United Airlines is putting heavy new pressure on the financially strapped federal agency that protects private pensions for millions of workers and retirees.
The United case also will probably intensify efforts in Congress to strengthen the Pension Benefit Guaranty Corp. and revamp rules that companies follow to fund their pensions.
The agency has estimated that private pension plans are underfunded by more than $450 billion, a record.
The agency was created in 1974 as a government insurance program for traditional “defined benefit” pension plans. Its deficit more than doubled to a record $23.3 billion last year. That shortfall assumed that the agency would take over United’s pension obligations, officials said.
“United’s ability to shift any pension obligations to the PBGC is going to tax further the agency’s already strained resources,” said Barbara Roth, a partner at Torys LLP, an international law firm.
The agency last year said it had $39 billion in assets to cover $62.3 billion in pension liabilities. Even with the record deficit, the agency has “sufficient assets to pay all benefits for a number of years into the future,” spokesman Jeffrey Speicher said. “Our financial problem is a long-term one.”
Private analysts warn that the problems could worsen if other ailing companies jettison their pension plans.
The defined benefit pension plans protected by the agency are prevalent in older industries, such as automobile manufacturing, steel and airlines.
Manufacturers have been hard hit by foreign competition and the 2001 recession. Airlines were staggered by the attacks of Sept. 11, 2001.
The agency’s operations are financed largely by insurance premiums, which are paid by companies that sponsor traditional pension plans. It also earns money from investments and receives funds from pension plans it takes over. The agency is not funded through tax revenues.
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