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Friday, January 31, 2003

By Jim McKay, Post-Gazette Staff Writer

The government program that insures private pension plans of 44 million Americans yesterday said it drained a $7.73 billion surplus last year and posted a record shortfall for 2002 of $3.64 billion.

The $11.37 billion net loss reported by the Pension Benefit Guaranty Corp. -- much of it related to the troubled steel industry -- excludes a request for relief made yesterday by US Airways, which hopes to shed obligations to an underfunded pilots pension plan so it can quickly emerge from bankruptcy court protection.

The agency's director, Steven A. Kandarian, said the PBGC has sufficient assets to pay benefits to workers and retirees "for a number of years." But he said the program must be strengthened to survive the longer term.

The PBGC, created through the Employee Retirement Income Security Act of 1974, protects defined benefit pension plans much as the Federal Deposit Insurance Corp. protects bank depositors from failures.

The agency is funded through premiums paid by corporate sponsors of defined benefit pension plans. The basic premium is $19 per participant per year, but the sponsors of certain underfunded plans that pose the greatest risk pay an additional premium based on the amount of the underfunding.

Yesterday, the PBGC said its $25.43 billion in assets were enough to continue paying benefits while it examines ways to improve the financial position of its single-employer plans, where the losses have come. The agency spent the first 21 years of its existence in deficit. Its only recorded surpluses came from 1996 through 2001.

In the last fiscal year, the agency assumed responsibility for 144 underfunded pension programs, including LTV Corp. plans covering 82,800 workers and retirees that were underfunded by a record $1.85 billion.

The LTV record didn't stand for long. It was eclipsed this fiscal year when the PBGC moved to assume responsibility for the troubled pension programs of Bethlehem Steel, another bankrupt steelmaker whose plans covering 95,000 workers and retirees were underfunded by $4.3 billion.

In addition to Bethlehem, the PBGC has this year taken control of National Steel Corp. plans that were underfunded by $1.5 billion and covered 35,000 participants. The National and Bethlehem deficits were excluded from the PBGC's annual report for 2002 and will show up in the agency's 2003 results.

An estimated $9.3 billion of its 2002 losses came from pension plan terminations under the agency's single-employer plans. Of that, the steel industry accounted for $7.57 billion.

Interest rate declines also contributed to the deficit. The PBGC said lower interest rates increased the program's liability by $1.65 billion. On the investment side, it recorded a small gain from a portfolio of Treasury bonds and stocks.

Overall, the single-employer program, which insures the pensions of 34.4 million Americans, last year had $25.43 billion in assets to cover $29.07 billion in liabilities. The previous year the program had $21.77 billion in assets to cover $14.04 billion in liabilities.

A separate multi-employer program, covering 9.5 million Americans in 1,661 plans, remained financially sound.

That program had income of $42 million, improving its net financial position to $158 million from $116 million.