Uncle Sam's Pension Problem

As House Moves Towards Vote, Pension Agency Cites $22B Deficit

(AP) 
For months, lawmakers have been grappling with an overhaul of the rules governing company pension plans to tighten controls over employers with underfunded plans and shore up the PBGC's finances. Legislation cleared a key House committee last Wednesday, advancing what could be the most important retirement issue Congress will address this year as Social Security's overhaul has faded into the background.

The full House could take up the bill as early as this week.

Democrats generally oppose it. They say it could lead some employers to drop their pension plans or switch from traditional so-called defined-benefit plans to less expensive defined-contribution programs, such as 401(k) plans — in which employers contribute to a retirement fund and workers receive only what the investments have earned.

Many companies are replacing defined-benefit pension plans with defined-contribution plans. The PBGC only backs defined-benefit plans, which are most prevalent in older industries such as automobile manufacturing, steel and airlines — now reeling from record fuel costs, historically low fares and cutthroat competition.

The agency was created in 1974 as a government insurance program for traditional employer-paid pension plans. Companies pay insurance premiums to the agency, and if an employer can no longer support its pension plan, the agency takes over the assets and liabilities and pays promised benefits to retirees up to certain limits.

Employees do not receive their full pension benefits when the PBGC takes over a plan. The maximum annual benefit for plans assumed by the agency this year is $45,614 for workers who wait until 65 to retire.