PBGC Calls Out DRC Modifications

>In a letter to US Senate majority leader Bill Frist (R-Tennessee), the board of the PBGC first applauded the chamber for taking up HR 3108, the Pension Funding Equity Act, after the Senate failed to pass the measure at the end of last year (See  Senate Fails to Pass Pension DRC Act ).  “We appreciate the Senate’s timely action on this issue of great importance to America’s workers and pension plan sponsors,” the letter signed by Secretary of Labor Elaine Chao, Secretary of the Treasury John Snow and Secretary of Commerce Donald Evans reads.  

>However, the PBGC board says the bill needs to be passed without changing existing DRC rules –  accelerated payments required of employers with substantially underfunded pension plans – calling a pending amendment to include DRC rules “irresponsible” since the provisions would “significantly further exacerbate systemic pension plan underfunding.”   If the Senate does include DRC provisions, then the PBGC board said it would seek a Presidential veto of the legislation.  

The House-passed version avoided the more controversial DRC amendment (see House Approves Pension Relief Bill ), which the PBGC has continued to challenge at a critical time for the nation’s private pension system (see  PBGC Board Cautions Senate on DRC Action ).  Highlighting the concerns of financially strapped employers struggling under the burden of pension obligations, Fitch Ratings previously said in a research report that the bill would “help ease airline liquidity pressures” by delaying the DRCs starting in 2005. Fitch estimated that the largest US air carriers collectively face an unfunded pension liability of more than $20 billion (See Fitch: Pension Bills Could be Big Help for Airlines ).

>In its most recent caution, the PBGC, which reported earlier this month a deficit of $11.2 billion, pointed to a weakened defined benefit system across the nation and fears that accelerating pension contributions would only worsen the PBGC’s situation.   In addition to a deficit that is three times larger than any previously reported shortfall, the PBGC is also exposed to $85 billion is plans sponsored by “financially weak employers” (see  PBGC Says Pension Promises Outpace Funding ).

Of the“possible exposure” total, airlines ($23.4 billion) and primary metals & fabricated metal products ($10.2 billion) account for nearly 40%. “PBGC continues to face significant exposure from troubled companies with underfunded pension plans, especially in the air transportation and steel sectors, the termination of which could produce substantial additional losses,” the agency said in its previously released annual report (See   PBGC FY 2003 Deficit Triples to $11.2B).