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The flood could be just beginning at the Pension Benefit Guaranty Corp. The quasigovernmental agency now has $23 billion in obligations, thanks to its move to assume $6.6 billion in claims from four underfunded United Air Lines Inc. pension plans. “United simply illustrates the beginning of the waterfall,” said Robert W. Mann, principal in Port Washington, N.Y., airline industry consulting firm R.W. Mann & Co. Before assuming UAL’s burden, more than half of the PBGC’s obligations involved terminated steel company pension plans. In fact, the PBGC may have to assume more pensions from America’s smokestack industries, which are under the yoke of high legacy costs because they have thousands more retirees than they have active workers, said Douglas J. Elliott, the president of the Center on Federal Financial Institutions. This is particularly true of sectors exposed to extensive domestic and foreign price competition, such as steel, automaking and airlines. Now that United has won the right to slough its pensions off on the PBGC, it’s a good bet that Delta Air Lines Inc. will do the same, said Gary Kushner, president and CEO of Kushner & Co., a Portage, Mich., benefits and pension specialist. (Delta continues to warn that a Chapter 11 filing is imminent.) If the airline terminates its plan, however, it would surely put a dent in the PBGC’s ample cash reserves, he said. PBGC already administers US Airways Inc.’s plan. US Airways is in bankruptcy for a second time. What could worsen the situation even more is if Congress fails to either extend Delta’s waiver to delay pension payments or doesn’t pass legislation that could increase the PBGC’s income, since the agency faces a cash shortfall beginning in 2021, according to Jon Ash, president of InterVistas-ga2, a Vancouver, British Columbia, transportation consulting firm. And if the unthinkable happens, such as General Motors Corp. and Ford Motor Co. going bankrupt and coming to the PBGC with hat in hand, the PBGC would be staring at a bottomless abyss, Kushner said. The agency, created in 1974 to guarantee corporate pension benefits, probably had no choice but to assume $6.6 billion in United’s pension obligations because the U.S. Bankruptcy Court for the Northern District of Illinois in Chicago would have likely ordered it do so, Ash said. (United’s parent, UAL Corp., filed for Chapter 11 protection there on Dec. 9, 2002.) United actually owed $8.9 billion on its pensions, but the airline’s workers will pay $2.3 billion of this. In December 2002, Bethlehem Steel Corp. presented the PBGC with a $3.7 billion IOU. It was at the time the largest underfunded pension claim in history. Despite the amount of money it needs to pay out, the PBGC is nowhere near going broke. The agency paid out $3 billion in benefits in 2004 but took in $1.5 billion in premium payments and $3.25 billion in investment income that year, said PBGC news manager Gary Pastorius. “Short term,” he said, “our situation is fine.” It’s the long haul that concerns most observers. “Taxpayers ought to be worried over PBGC’s cash position,” Mann said. “They’re the ones who will foot the bill.” The PBGC guarantees up to $45,000 in pension payments a year, providing an individual retires at 65 and the pension is actually worth that amount. For United workers, the average monthly pension payout is about $1,400. “But some people will lose up to 20 percent of that,” said Joseph Tiberi, spokesman for the International Association of Machinists and Aerospace Workers. Copyright �2005 TDD, LLC. All rights reserved.

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