U.S. Pension Insurer Posts Gap Of $3.64 Billion, After Surplus

WASHINGTON -- The federal corporation that insures the pension plans of 44 million workers and retirees reported a $3.64 billion deficit in fiscal 2002, after a $7.7 billion surplus the year before.

In its annual report, the Pension Benefit Guaranty Corp. said the net loss of $11.4 billion was the widest in the pension insurer's 28-year history.

Most of the loss, however, was attributable to a small number of large pension plans, particularly in the steel sector. During the year ended Sept. 30, the PBGC absorbed a $1.85 billion loss from the underfunded pension plans of LTV Steel Corp.

Since the close of fiscal 2002, the PBGC has moved to assume responsibility for the pension plans of National Steel Corp. and Bethlehem Steel Corp. "All told, the steel industry accounted for $7.57 billion of the $9.31 billion in losses from completed and probable pension-plan terminations," the agency said.

The agency guarantees pension benefits of workers participating in private-sector defined-benefit pension plans. In 2002, the PBGC became trustee of 144 pension plans covering 187,000 people, up from 104 plans and 89,000 participants the year before. The total number of participants owed or receiving guaranteed benefits from the PBGC rose to 783,000 from 624,000, according to the report.

Despite the grim numbers, the PBGC sought to reassure workers.

"The PBGC has sufficient assets to pay benefits to workers and retirees for a number of years," said Executive Director Steven A. Kandarian. "But given the amount of underfunding in pension plans sponsored by financially troubled employers, we must examine every available option to strengthen the pension-insurance program for the long term."

Such options might include raising the premiums that employers pay ($19 for each participant in most plans), and requiring employers to contribute more money to underfunded pension plans.

Employer groups generally oppose premium increases or requirements that they more adequately fund their pension plans. "Imposing additional premiums at this point would be both premature and potentially quite harmful," said Janice Gregory, vice president of the Erisa Industry Committee, a trade association that represents employers. "The PBGC has had a tough year," she said, "but it has an unquestioned ability to pay benefits for years into the future. The PBGC would be helped by a sound pension system, not by enriching its own coffers. It's important to remember that the pension system doesn't exist to keep the PBGC, the PBGC exists to help out the pension system."

Ironically, employer groups are lobbying to adopt a higher discount rate when calculating pension liabilities. A higher rate would make their plans appear better funded and thus enable them to contribute less money to them.

Treasury officials agree that a new rate must be adopted for calculating pension liabilities, but say that the way employers calculate liabilities ought to be reviewed as well.

Write to Jeff Bater at jeff.bater@dowjones.com⁶