U.S. Pension Insurance Director to Leave, Warning of Need for Reforms

A.M. Best

Chris Grier

January 9, 2004

WASHINGTON, Jan 09, 2004, (A. M. Best via COMTEX) -- The director of the federal government's pension insurance program is leaving after two years on the job, warning that taxpayers will have to foot the bill for the ailing program if its record deficit widens much further.

Steven A. Kandarian has been at the helm of the Pension Benefit Guaranty Corp. since December 2001, acting as the Bush administration's leading voice on pension-fund reform. He has spent much of that time fighting congressional proposals to give short-term aid to industries with ailing and underfunded pension plans, such as the steel and airline sectors. Instead, Kandarian has argued, swift reforms are needed, as bailouts will only worsen the current situation.

"We have learned these past two years that current pension funding rules are inadequate to ensure sound funding in plans (that are) at the greatest risk of termination," Kandarian said in his Jan. 7 resignation letter to U.S. Labor Secretary Elaine Chao.

The PBGC insures traditional retirement plans for about 44 million people. There are more than 30,000 such plans in the United States, according to government data. Recent low interest rates, a dragging economy and a growing number of retirees, however, have been a drain on the private pension system. PBGC has taken over more than 3,200 private pension plans paying benefits to nearly 1 million current and future retirees, and its deficit swelled to a record $8.8 billion as of Aug. 31.

PBGC's payments were $2.5 billion through the fiscal year that ended Sept. 30, and the government estimates those payments will total $3 billion at the end of the current fiscal year.

In eight years, more than 13% of the U.S. population will be retired, according to 2003 data from the research and consulting firm Cerulli Associates (BestWire, June 5, 2003).

"If we do not take action soon, these consequences will repeat themselves, or worse, U.S. taxpayers may find themselves called upon to bail out the pension insurance system," Kandarian wrote.

The Senate is expected to take that matter up when it reconvenes Jan. 20. A pension bill already passed by the House seeks to enact the very sort of corporate help Kandarian says will further weaken the private pension system. The House bill also does little to address funding levels or solvency, focusing instead on making sure workers don't lose retirement savings because of employers' unscrupulous business practices.

The Bush administration has supported changes to keep private pension funds solvent. The U.S. Treasury Department has suggested funding approaches that account for the number of older employees about to retire, but businesses and labor unions both have opposed that approach.

In his resignation letter, Kandarian cited personal reasons for his exit; he has a wife and three young children in Boston. His last day is in mid-February. Chao has not yet named Kandarian's successor.

Copyright (C) 2004 A.M. Best