By: Mary Wisniewski, Business Reporter

May 30, 2005, Chicago Sun-Times

The last few years have been tough ones for the government agency that provides the safety net for people in corporate pension plans -- and this year may be the worst of all.

The Pension Benefit Guaranty Corp. said that 70 percent of its losses during the last 30 years occurred between 2000 and 2004.

Claims from failed single-employer pension plans added up to $14.3 billion during that time period. The agency said that the most recent surge in losses "dwarfs" anything in its history. The 2000-2004 total is 18 times larger than the claims booked in 1995-1999.

The PBGC report comes in the same month that a Chicago bankruptcy judge approved a settlement that will allow the agency to take over $6.6 billion in United Airlines' pension liabilities -- the largest pension default since the PGBC was created in 1974. The move affects 121,500 active and retired workers.

"These data highlight the unprecedented challenges facing the defined-benefit system and the pension-insurance program," said PBGC Executive Director Bradley Belt. "While most companies should be able to honor their promises to workers and retirees, far too many are reneging on these promises and shifting costs to the pension insurance program."

Belt said that Congress needs to act on a Bush administration proposal to strengthen the defined benefit system.

The PBGC reported a $23.3 billion deficit last year. The administration has proposed a plan that would require greater disclosure and a revised premium system that would require financially weak companies with underfunded plans to pay a higher premium than strong companies, according to PBGC spokesman Jeffrey Speicher.

Corporations with insured pension plans pay premiums to the PBGC. Currently, all plans pay $19 a year per worker. Underfunded plans must pay an additional premium of $9 per $1,000 of underfunding.

"It's not a surprise that you see these mounting losses," said Thomas Lys, a professor at Northwestern University's Kellogg School of Management. "It's happening because some of these industries with blue collar workers, like airlines, are facing trouble."

Pension terminations by firms in the primary metals and air transportation industries account for over 67 percent of PBGC claims.

"The PBGC has to be restructured to adjust fees properly, or it creates incentives for the Uniteds of the world to pass on the liability," Lys said.

Illinois ranks fourth in the nation in the amount of PBGC benefit payments -- with residents receiving more than $206 million from the PBGC in 2004. Pennsylvania -- which saw the Bethlehem Steel pension default -- receives the most followed by Ohio, and Florida.