A Much Deeper Pension Hole?

Congressional estimates put the Pension Benefit Guaranty Corp.'s bill at $120 billion, far greater than the agency's own appraisal

How deep in the hole is the Pension Benefit Guaranty Corp.? According to new congressional estimates, the government-run insurer of traditional pensions could face a bill of more than $120 billion over the next decade to cover pension fund losses, BusinessWeek has learned. That far exceeds the $23 billion that the PBGC estimates it needs to pay off workers and retirees. The PBGC's liabilities include the $6.6 billion in unfunded United Airlines (UAL ) pension obligations that the agency absorbed on May 10.

The difference between the estimates: The Hill experts figured the market value of PBGC's future liabilities by pricing the risk of default by all companies that offer pensions, not just corporations saddled with below-investment-grade credit ratings. In other words, it takes into account that today's blue chips could evolve into tomorrow's junk.

MUTING COMPLAINTS. The new estimate will turn up the heat for additional premiums and stricter funding rules to shore up pensions and the PBGC. The White House, determined to avoid a taxpayer bailout of the agency -- akin to the savings-and-loan debacle of the 1980s -- is pushing these and other pension reforms.

So far, however, Congress, under pressure from business lobbyists, has moved gingerly on the Bush Administration's plan. Corporate America opposes many of the measures, arguing in part that they're unneeded. Business reps gripe that the PBGC is exaggerating its plight. The agency has ample assets to cover its pension obligations for now, they assert.

Besides, they say, a market rebound could bolster many ailing plans that now seem destined for termination and takeover by the PBGC. But the grim congressional forecast will likely mute business complaints that the PBGC is crying wolf.

Borrus is a correspondent and Gleckman, a senior correspondent, in BusinessWeek's Washington bureau

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