Private Pensions: Airline Plans' Underfunding Illustrates Broader Problems with the Defined Benefit Pension System Page: 4 of 13
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Before I discuss the airlines more specifically, I want to briefly note the
recent, serious financial challenges posed by underfunded pension plans
in the airline and other industries for PBGC and the agency's role in
protecting DB pension plans. PBGC's single-employer insurance program
is a federal program to insure the benefits of the more than 34 million
workers and retirees participating in private and not-for-profit DB pension
plans.2 While the program is intended to be self-sufficient through
employer premiums and investments, over the last few years, the
program's finances have taken a severe turn for the worse. In 2000, the
program appeared financially healthy, with the assets exceeding the
current value of its liabilities by $9.7 billion. By March 2004, however, this
surplus had become a $9.7 billion accumulated deficit, largely as a result
of PBGC's takeover of several large, underfunded pension plans of
sponsors that had gone bankrupt. This represents a $19.4 billion reversal
in PBGC's financial condition in only 312 years. As I have noted in recent
testimonies before several congressional committees, we believe the
single-employer program's long-term ability to sustain itself as a self-
funded entity is at risk in its present form.3 Given the structural problems
facing the agency, in July 2003, GAO placed the PBGC single-employer
pension program on our "high-risk" list of troubled federal programs in
need of ongoing attention by the Congress.
2DB pension plans promise a benefit that is generally based on an employee's salary and
years of service, with the employer being responsible to fund the benefit, invest and mange
plan assets, and bear the investment risk. A single-employer plan is a plan that is
established and maintained by only one employer. Single-employer plans can be
established unilaterally by the sponsor or through a collective bargaining agreement with a
3See U.S. Government Accountability Office, Pension Benefit Guaranty Corporation: Single-
Employer Pension Insurance Program Faces Signfficant Long-Term Risks, GAO-04-90
(Washington, DC.: Oct. 29, 2003); Private Pensions: Changing Funding Rules and Enhancing
Incentives Can Improve Plan Funding, GAO-04-176T (Washington, DC.: Oct. 29, 2003);
Pension Benefit Guaranty Corporation: Long-Term Financing Risks to Single-Employer
Insurance Program Highlight Need for Comprehensive Reform, GAO-04-150T (Washington,
DC.: Oct. 14, 2003); Pension Benefit Guaranty Corporation: Single-Employer Pension
Insurance Program Faces Signifcant Long-Term Risks, GAO-03-873T (Washington, DC.:
Sept. 4, 2003).
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United States. Government Accountability Office. Private Pensions: Airline Plans' Underfunding Illustrates Broader Problems with the Defined Benefit Pension System, text, October 7, 2004; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc295080/m1/4/: accessed September 21, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.