Federal Reserve Chairman Alan Greenspan told lawmakers on the Senate Banking, Housing and Urban Affairs Committee today that saddling the PBGC with more large plan terminations is "clearly a negative" and "worrisome for taxpayers." Responding to a question after his testimony on the U.S. monetary system, Mr. Greenspan said although he doesn't anticipate any spillover effect on the economy yet, he worries that taxpayers ultimately might have to bail out the PBGC. The agency's deficit, already at more than $23 billion, could grow larger this year as more sponsors dump their underfunded pension plans.
"My worry is that ultimately it will require us to fill in the deficit with U.S. Treasury bonds, which will only increase the federal deficit," he added.
Separately, an SEI Investments poll of pension plan executives indicates that most believe the Bush administration's pension reform proposal focuses too much on solvency of the PBGC and not enough on the long-term health of defined benefit plans. More than 85% of the 54 executives surveyed said the administration's proposal, issued in January, does not focus enough on creating a pension system that balances the long-term nature of pension liabilities with the PBGC's solvency. Thirty-five percent said the proposal and its extra costs will increase the risk of corporate bankruptcies. In addition, 56% of respondents said they are re-evaluating how their plans are managed, including their asset allocation and funding policies.