Pension funding crisis overstated

AP via BusinessWeek ^ | Jim Abrams

[Racehorse]

Warnings of a financial crisis in the nation's worker pensions system are overstated, an industry group said Friday as Congress prepared legislation to overhaul the system to protect future retirees' benefits.

The liabilities of the federal agency that guarantees worker pensions, estimated at $23.3 billion at the end of 2004, are inflated by excessively low interest rate assumptions and overly conservative investment strategies, according to a report prepared for the American Benefits Council, which represents companies with defined benefit pension plans.

There's no dispute that the Pension Benefit Guaranty Corp. has inherited large liabilities in recent years and a change in funding rules is needed, said Council president James Klein.

"But it is equally true that the financial assumptions used by the agency make the situation appear far worse than it actually is," Klein said.

In response, the PBGC provided a statement by its auditors, PricewaterhouseCoopers, that the agency's assessment of its financial position was fair and in accordance with generally accepted accounting principles.

[. . .]

The [American Benefits Council] report was in sharp contrast to a Congressional Budget Office report last week that predicted a jump in PBGC liabilities to $87 billion over the next decade and $142 billion in 20 years.

The CBO factored in estimates of future bankruptcies and plan terminations, predictions that gained some reality last week when Delta and Northwest, two major pension plan holders, filed for bankruptcy.

The PBGC, founded in 1974, guarantees payments of basic pension benefits for about 44 million workers and retirees in more than 31,000 private-sector plans.

[lOKKI]

GM is just dying to dump it's pension liabilities on the Pension Guarantee system. That's the difference between profit and loss for them. It's better for them to drive themselves into bankruptcy so that they can force better terms on the unions and be free of pension liabilities for 5 years or so than to continue with their corporate nose just above the waterline.

The legacy airlines have benefited greatly from bankruptcy and cutting pensions, as did the steel companies in the 70's.

Watch for it to happen, no matter what Business Week is saying - this week.