US pension agency's deficit swells to $23.3 bln

The deficit at the federal agency that rescues failed US corporate pensions more than doubled to $23.3 billion in fiscal year 2004, officials said yesterday, with analysts largely blaming bankrupt airlines.

The Pension Benefit Guaranty Corp. insures the traditional "defined benefit" pensions of about 44 million workers. It started the year with a then-record deficit of $11.2 billion in its programme for pension plans sponsored by a single employer.

The agency was hit by a $14.7 billion loss from "completed and probable" pension plan terminations during the year ending September 30, which was only partially offset by premium and investment income.

While the agency did not name the companies whose pension plans had caused the flood of red ink, the PBGC said its largest exposure came from the transportation, communications and utilities sector.

Analysts said looming liabilities from struggling airlines clearly had hurt the PBGC balance sheet.

Expected pension plan terminations at bankrupt carriers United Airlines and US Airways must have figured in the loss because both companies plan to scrap employee plans to save money, said Douglas Elliott, president of the Centre on Federal Financial Institutions, a think tank in Washington.

"The legal threshold for including the amount is only that they are 'probable' terminations," Mr Elliott said. "So United has got to be in there as well as US Air."

"These guys are in trouble," he said of the PBGC. The PBGC has said in court that termination of pension plans at United, a unit of UAL Corp., would add $6.4 billion to its liabilities. The agency would have to pick up $2.1 billion in liabilities at US Airways if that airline scraps its three remaining defined benefit plans.

The chairman of the House Committee on Education and the Workforce, Representative John Boehner, said airlines' woes were aggravating the trend in underfunded pension plans. The PBGC slipped into a deficit in 2002 after having to rescue failed pension plans in the steel industry.

While the agency is funded by corporate premiums, its problems are "putting taxpayers' interests in real jeopardy," said Mr Boehner, a Republican from Ohio.

He vowed to move forward with comprehensive legislation to reform and strengthen traditional "defined benefit" pensions, which have a fixed payout at retirement.

In addition to losses booked for fiscal 2004, the PBGC calculated its "reasonably possible" exposure, which is an estimate of the amount of unfunded benefits in pension plans sponsored by companies at greater risk of default. This was estimated at $96 billion, up from $82 billion a year earlier.

Total underfunding of pensions at US companies whose single-employer pension plans are insured by the PBGC jumped in fiscal 2004 to $450 billion - up from $350 billion a year earlier.

The PBGC's separate insurance programme for multi-employer pensions had a deficit of $236 million in fiscal 2004 - smaller than the deficit of $261 million a year earlier.