US - Companies with underfunded pension plans reported a record shortfall of US $353.7bn in their latest filings with the Pension Benefit Guaranty Corporation (PBGC).
Executive director Bradley Belt told the Senate finance committee the figure is up 27% from the previous year, when companies recorded underfunding of US$279bn.
The 2004 reports, filed with the PBGC, were submitted for 1,108 pension plans covering about 15m workers and retirees. The underfunded plans had US$786.8bn in assets to cover more than US$1.14trn in liabilities, for an average funded ratio of 69%.
Only companies with more than US$50m in unfunded pension liabilities are required to file a report.
In his testimony to the committee, Belt said United Airline’s corporate default, which will see the PBGC assume some US$6bn of the company’s pension liabilities, offered important “albeit painful” lessons.
Although the four terminated plans have an aggregate funding shortfall of almost US$10bn and an average funded ratio of 41%, the company was able to go for years without making any cash contributions to the plans, without paying additional premiums to the PBGC, and without sending underfunding notices to plan participants, Belt said.
United offers lessons “that illustrate the flaws in the current law and which should guide us in reforming the defined benefit system and pension insurance programme,” Belt said in his testimony.
As of September 30, 2004, the PBGC estimated that the total shortfall in all insured pension plans exceeded US$450bn.
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