- Cape businessman known for starting NARS dies at 49 (2/23/17)9
- Apparent punch at girls basketball game propels lawmaker into action (2/21/17)4
- Business notebook: Owners ready to roll out the Barrel 131 (2/20/17)7
- Japanese restaurant up and running; owner surprised by fondness of sushi here (2/24/17)1
- SoutheastHEALTH, Washington University School of Medicine announce collaboration (2/24/17)21
- Missouri bill would limit transgender school bathroom access (2/22/17)48
- City issues precautionary boil order near Arena Park (2/23/17)
- Annual father-daughter dance provides some fun bonding time (2/19/17)1
- $22M bond issue would alter Jackson schools (2/22/17)13
- Former KFVS12 reporter talks about recovery from eating disorder (2/23/17)11
Lax rules create spike in underfunded pensions
WASHINGTON -- Sen. Jim Bunning is from a state perhaps best known as home to the horse industry, but Kentucky is also where 8,000 Delta Air Lines employees live, which helps explain why the Republican lawmaker was fuming on Tuesday.
Why, he wanted to know, have Delta and other airlines continued to negotiate growth in their employee pension plans when they're defaulting on or having trouble meeting their existing retirement obligations?
When Delta CEO Gerald Grinstein started to answer, Bunning cut him off and said, "You're going to listen!"
At another point in the Senate Finance Committee hearing, he snapped at Grinstein and the heads of United and Northwest airlines, demanding "why we should reward lousy management."
The panel, on which Bunning is a member, convened the hearing to try to learn from the airlines' experience. What the senators heard was sobering.
Lax reporting rules created by Congress, coupled with corporate America's eagerness to take advantage, have triggered a spike in underfunded pension plans largely unknown to millions of workers and retirees, panelists said.
The federal Pension Benefit Guaranty Corp., which insures private pension plans, now has a $23.3 billion deficit because of defaults, triggering fears of another massive taxpayer bailout similar to the 1980s savings and loan crisis.
Bradley Belt, the PBGC's executive director, told senators the number of pension plans that are more than $50 million short of promised benefit levels rose from 221 in 2000 to 1,108 in 2004. Those funds have an average of just 69 percent of promised benefits on hand.
Another panelist, David Walker, head of the nonpartisan Government Accountability Office, declared, "The law represents the floor of acceptable behavior, not the desired state.
"Unfortunately, when it comes to pension funding, too many high-risk companies do what is legally permissible, rather than what is right, when deciding how much money to put into their pension plans," Walker said.
The statistics and comments prompted calls for swift legislative action this year, adopting bills pushed by President Bush, Sen. Jay Rockefeller, D-W.Va., or Rep. John Boehner, R-Ohio. In general, the bills create schedules to eliminate the funding shortfalls and revise rules that let companies mask underfunding. They also provide greater transparency so that information about the funds now available only to the PBGC is shared with the public.
The hearing took place against the backdrop of the high-profile debate about overhauling Social Security. The federal retirement program is one-third of the so-called three-legged stool that financial planners suggest workers erect for their retirement.
The other "legs" are money invested by workers in 401(k), IRA or other tax-preferred investment plans, as well as corporate pension plans in which an employer typically pays a defined benefit to a worker during retirement.
About 34 million people expect to receive payments from their employers through defined benefit plans.
The risk those workers face was highlighted by the recent United ruling, in which the PBGC assumed responsibility for paying pensions to 120,000 current and former airline employees. While they were owed more than $9 billion in pension benefits, they will receive only about two-thirds of that amount -- $6.6 billion -- because of the agency's insurance limits.
A PBGC report released Tuesday showed that pension rules let United underfund its plan without notifying its employees, paying extra insurance premiums or accelerating its pension payments.
United chairman Glenn Tilton, the focus of most of the day's sharp questions, said the airline was forced to seek pension relief when the government refused to grant it a $1.1 billion loan guarantee. While conceding the ruling has caused employee pain, he added, "From the outset of the bankruptcy process, our mission has been to enable United Airlines to succeed as an enterprise. Without success for the enterprise, the rest is an academic exercise."
Two other airline executives, Grinstein and Douglas Steenland, president of Northwest Airlines, lobbied for the bill sponsored jointly by Rockefeller and Sen. Johnny Isakson, R-Ga.
"In short, the current funding rules are too volatile, unpredictable, inflexible and too expensive for our company to survive and compete in the modern, deregulated airline industry that demands we deliver service to our customers at a competitive price," Steenland said.