Pamela A. MacLean
RedwoodAge.com

In the six years since the federal program to insure corporate pensions was labeled "high risk" by government watchdogs, little has changed and the threat of losses from underfunded corporate pension plans remains high.

This threat has serious ramifications for millions of boomers on the verge of retirement. Retirees may see the amount of their pensions cut when companies abandon the plans in bankruptcy or retirees may be paid incorrect amounts by federal trustees attempting to unravel complex company plans with missing documents or sloppy records.

The current economic downturn has already brought an influx of pension plan terminations to the Pension Benefit Guaranty Corp., which insures nearly 44 million workers in more than 29,000 private-sector pension plans, according to the Government Accountability Office. 

The PBGC insures pension plans known as defined-benefit plans. Historically, these are the fixed pensions guaranteed to workers who retired from union jobs or from management in large companies. 

While most companies have moved away from offering employees pensions in the last two decades, plenty of these historic pension plans remain.  Now  many boomers are on the verge of claiming the payments as a centerpiece of their retirement nest egg.

If companies file for bankruptcy and can no longer fund the benefits promised in pension plans, the plan may be terminated and PBGC steps in as trustee to make the payments. But there are limits on payments that can result in reductions to retirees' benefits. 

By 2008 PBGC had 3,860 pension plans in trusteeship, representing pensions for millions of workers. More than a quarter of those plan failures, nearly 1,100, came between 2000-2008.  

In 2003, the Government Accountability Office designated the PBGC pension insurance program "high risk" and in need of "urgent attention and transformation."  In a new analysis issued in September, the GAO said the program "remains a high-risk concern due to the ongoing threat of losses from the terminations of underfunded plans."

Deficit Soars
PBGC's accumulated deficit totaled $33.5 billion at the end of fiscal 2009's second quarter. That's a $22.5 billion increase just since the end of fiscal year 2008, GAO warned.  PBGC has made clear to Congress it has the money to pay the current pension obligations, despite the deficits.

But for individuals on the verge of claiming their pensions, the PBGC's difficulty in calculating benefits due can take years to resolve. The average time to calculate a benefit is nearly three years and can be as long as nine years in a handful of the most  complex pension programs, according to GAO.

For example, two of the biggest programs taken over, Bethlehem Steel, had 93,000 participants and Kaiser Aluminum and Chemical Corp. had more than 10,000.  For Bethlehem, PBGC officials had to sort through pension terms that were the product of more than 100 company mergers, consolidations or spin-offs.  In addition, not all data were in electronic form.  Bethlehem's Lackawanna facility did not use computerized records so 20,000 hand-copy employee records had to be reviewed on site.

Meanwhile, the agency pays an estimated benefit to retirees, but if it is too low the retiree will be reimbursed with interest down the road.  If the estimated payment is too high, the PBGC will begin docking pension payments 10 percent per month to recoup the overpayments.

The GAO pointed out the overpayments by PBGC hit $100 million in 2008 with just $14 million recouped.  The report more timelines in finalizing benefit decisions, prioritizing calculations and improving the appeals process for retirees.