Report: $87 billion deficit looms for pension agency

The agency that insures pensions for millions of workers may have a shortfall of almost $87 billion during the next 10 years, the Congressional Budget Office (CBO) said.

The deficit at the Pension Benefit Guaranty Corp. (PBGC) raises "the specter of a sharply reduced pension for some insured workers or the need to provide taxpayers' dollars to the PBGC," the budget office said in a report yesterday.

The office had said in June the deficit might grow to $71 billion in the next decade.

The quasi-governmental PBGC, which recently assumed pension obligations of several airlines and steel companies, reported a deficit in its future obligations of $23.3 billion in fiscal 2004.

That estimate "significantly understates the financial exposure" of the agency, the budget office said.

The bankruptcy filings of Delta Air Lines and Northwest Airlines on Wednesday may add as much as $11 billion to the agency's deficit.

With about $40 billion in cash on hand, the PBGC will be able to pay pension benefits for several years into the future, agency spokesman Jeffrey Speicher said yesterday. He said he had no immediate comment on the CBO report.

The CBO estimate is high, because it assumes the cost that a private insurer would charge to take over the PBGC's pension obligations, said Douglas Elliott, president of the Center on Federal Financial Institutions, a research organization.

Without that premium, the PBGC deficit over 10 years is about $51 billion, Elliott said.

"Either way, we've got a real problem here," he said.

"You've got three choices: the taxpayers, the companies or Santa Claus" to make up the shortfall, Elliott said. "Theoretically, you could take it out of the hide of the employees, but practically, nobody's looking to do that."

Proposed legislation in Congress and a proposal from the Bush administration would increase the premiums companies pay the PBGC to fund the agency and require companies to more fully fund their pension plans.

"[Wednesday's] bankruptcy filing by Delta and Northwest is a grim reminder of the strains being placed on the government's pension-guarantee program," said U.S. Rep. John Spratt of South Carolina, the top Democrat on the House Budget Committee.

"It is bad news for taxpayers, who might have to cover part of the unfunded pension costs for Northwest and Delta employees," Spratt said.

Delta is likely to turn over about $8.4 billion in pension obligations to the PBGC, and Northwest about $2.8 billion, the agency said yesterday. The Delta plan would be the largest assumed by the PBGC in its history, Speicher said.

The PBGC assumed $6.6 billion of defined-benefit pension plans of United Airlines under a bankruptcy-court ruling in May. The agency took over pension plans of US Airways in February, adding about $2.3 billion to PBGC obligations.

Delta and Northwest said they still seek legislation from Congress allowing them to stretch out their pension-payment obligations, even as their bankruptcy filings made it easier for them to turn the plans over to the PBGC.

The two airlines want exemption from large pension payments in the next few years and the ability to take as long as 25 years to meet the obligations.