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The Marketplace Report: Stressed Pension Net

MADELEINE BRAND, host:

Back now with DAY TO DAY. I'm Madeleine Brand.

The Congressional Budget Office is painting a bleak picture of the country's pension system. The CBO says the federal agency that insures private pension funds is likely to run a deficit of some $70 billion over the next decade. "Marketplace's" John Dimsdale joins us from Washington.

And, John, how serious is this deficit?

JOHN DIMSDALE ("Marketplace"): Well, remember, we're talking here about traditional defined benefit pensions, the ones that guarantee retirees a set amount each month, not the 401(k)s where employer and employee pay into a retirement fund over the course of a career. The traditional pensions are found mostly in older industries, like steel and autos and airlines.

Now earlier this week, government watchdogs reported loopholes in the rules have allowed some companies to paint their traditional pension funds as more solvent than they really are, and when a company defaults on a traditional retirement fund, as US Airways and United have done recently or the big steel companies did a few years back, the government insurance fund, called the Pension Benefit Guaranty Corporation, takes over the pension assets and liabilities and continues to pay the benefits to retired workers. Now because of so many defaults recently, the PBGC is already $23 billion in the red, and today's report predicts the deficit will triple by 2015.

BRAND: So what does this all mean for people's pensions?

DIMSDALE: Well, they're not necessarily at risk immediately. The PBGC can and will cover most promised benefits for the foreseeable future. There are some exceptions. The government insurance program guarantees only $45,600 in payments every year. Now that's fine for more than 90 percent of the individual pensions run by the government, but some higher-income people get more plush benefits, and they stand to lose payments when the government takes over. For example, airline pilots take a double hit; they're forced to retire early by law, and the government reduces payments for early retirement. I talked to one recently retired pilot. His name is Robert Rhinehart(ph). He flew for United for 34 years, and now that United has abandoned its pension program, Rhinehart could see nearly 80 percent of his pension, which he thought was guaranteed for life, disappear--and soon.

Mr. ROBERT RHINEHART (Retired Pilot): I'm kind of planning on July being the last month that I'm going to get these checks, so of course, we've been pulling in our financial horns for the last six months, anticipating this, 'cause it's not like, you know, we aren't seeing this coming, and we just don't want to be caught out there saying, `Oh, we got all these bills now. What are we going to do?'

BRAND: And, John, what is Congress going to do about these threats to the pension system?

DIMSDALE: House members unveiled a plan today to increase the premiums that companies have to pay into the PBGC. Now it'll take some big increases to make the insurance fund whole. The worry is that the higher premiums will force many companies to drop their traditional pension plans.

Coming up later today on "Marketplace," we're looking at why many tech companies are having trouble finding skilled computer programmers.

BRAND: John Dimsdale of public radio's daily show "Marketplace." And "Marketplace" is produced by American Public Media.

Thanks, John.

DIMSDALE: You're welcome, Madeleine. Transcript provided by NPR, Copyright NPR.

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Madeleine Brand
Madeleine Brand is the host of NPR’s newest and fastest-growing daily show, Day to Day. She conducts interviews with newsmakers (Iraqi politicians, US senators), entertainment figures (Bernardo Bertolluci, Phillip Seymour Hoffman, Ricky Gervais), and the everyday people affected by the news (an autoworker laid off at GM, a mother whose son was killed in Iraq).
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