Financial Times: Record Deficit At PBGC

Norma Cohen

Wednesday November 16th 2004; Page 28

The US government-sponsored safety net for pension funds unveiled a record Dollars 23.3bn deficit for the year to September, more than twice the deficit reported last year.

The deterioration in the Pension Benefit Guaranty Corporation's finances prompted Bradley Belt, chief executive of the quasi governmental insurance fund, to appeal to Congress to stop the slide towards insolvency or a federal bail-out.

Mr Belt said the PBGC was "committed to protecting pension deficits . . . but it is imperative that Congress acts expeditiously so that the problem doesn't spiral out of control".

Legislation to force employers to fund pension promises more fully has been stalled in Congress for more than a year.

The PBGC, which is financed by premiums from insured plans, pays out a percentage of promised pension benefits if there is a shortfall in a scheme when an employer becomes insolvent.

Its debt is not guaranteed by the US government but its board includes the secretaries of labour, commerce and treasury.

Critics of the PBGC's funding rules say they allow troubled companies to systematically underfund their pension plans, guaranteeing that the schemes do not have enough cash when the employer becomes insolvent.

Doug Elliott, head of the Center on Federal Financial Institutions, a think-tank that has analysed the PBGC, said the latest numbers underscored the progressive deterioration of the pension insurance fund.

"This is confirmation that the PBGC is in real serious trouble," Mr Elliott said. "With an average loss of Dollars 10.4bn over the last three years, the hole is being dug deeper and deeper."

A recent report from CoFFi estimated the insurance fund would run out of cash by 2021. The finances of the PBGC have been hit hard by the financial woes of the airline industry.

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