As of December 2004, the Pension Benefit Guaranty Corp. PBGC had taken over pension plans with liabilities that exceeded assets by $23 billion. Earlier this year United Airlines increased the PBGC’s deficient by an additional $6 billion, and the other airlines are only a breath away from adding even more.
Where will the PBGC come up with the all the money to pay retiree benefits? Currently, the only source of revenue available to fund this deficient is the premiums that companies with defined benefit pension plans pay to the PBGC. Thus, the burden for paying United’s retirees will ultimately be funded by the other defined benefit pension plans paying PBGC premiums. But most benefit professionals expect that a shortfall in funds at the PBGC that would eliminate the retirement benefits for tens of thousands of retirees would likely result in a political move by Congress to transfer the necessary funding to keep the PBGC afloat.
That is something that the Bush administration is actively working to avoid. The Administration has proposed new rules to prevent underfunded plans from increasing benefit promises and potential PBGC liabilities, to require greater funding even when prior funding was greater than required, and to limit the payment of executive benefits for companies with severely underfunded plans. It has also been recommended that the PBGC’s premiums be increased. However, this has unattractive side effects because it places an increased burden on already financially troubled companies with plans.
Hopefully, Congress will follow the Administration’s lead and limit a company’s ability to promise benefits that it never expects to pay. Until then, taxpayers will ultimately be on the hook for what goes on in the boardroom.
Matthews Benefit Group, Inc.
2900 4th Street North, Suite A202
St. Petersburg, FL 33704
P: 727-896-8185
F: 727-821-1713
kjayne@eERISA.com
