U.S. companies and industries have underfunded their defined-benefit pension plans by a total of $450 billion, including a record $354 billion at large companies, the Pension Benefit Guaranty Corp. reported Tuesday.
The federal agency said it is now exposed to $108 billion in pensions at risk of default, up from $96 billion in 2004. Most of the deterioration came in the manufacturing sector, which saw its level of probable defaults rise from $51.3 billion to $71.3 billion in just one year.
The PBGC took over 120 defined-benefit pensions in the fiscal year and now covers 1.3 million active and retired workers. The agency paid out $3.7 billion in benefits in 2005, up from $3 billion in 2004.
There has been an explosion in recent years in the number of big, ailing companies -- especially in labor-heavy industries like airlines and steel -- transferring their pension liabilities to the PBGC. With billions of dollars flying out of the agency's door, concern has been mounting in Congress and elsewhere over its financial footing.
Dumping an ailing pension plan on the PBGC is now a major tactic of companies after they declare bankruptcy. For years, these same companies have underfunded their pensions. Since 1995, the net acquisition of financial benefits of defined benefit plans was negative, meaning their liabilities grew faster than their assets. Now they turn them over to the government.
The problem with the PBGC taking a pension is it often means lower benefits for those covered. According to the PBGC website, the maximum yearly payment is $45,612, and that is for a person who retired at 65. While this is not bad, it may be lower than the promised benefit to an airline pilot or mechanic.
So, the problem continues. Companies are underfunding their pension obligations, declaring bankruptcy, shafting their loyal employees and letting the executives bail-out with golden parachutes.
CBS Marketwatch
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