The Next Scrambled Nest Egg?

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But the PBGC, fearing a spike in claims that would send it deeper into the red and force a taxpayer bailout, wants companies to pay more, not less. Bush Administration officials are pushing for broader reforms at the agency that would limit corporate relief to two years and then switch to a stricter standard. The PBGC could also increase the premiums that companies pay to the agency. "We can't do some accounting fixes and wish the problem away," says a senior Administration official, cautioning against a legislative Band-Aid. "This is not the time to serve the sugar and put the spinach on the shelf for later."

Some opponents of reforms point out that the recent stock market recovery, coupled with signs that the economy is growing again, could mean that the PBGC's situation will improve with the rising tide. "We could be looking back two years from now and be saying 'What deficit?'" says Eric Lofgren, global director of the benefits group at Watson Wyatt Worldwide, a human-resources consultancy. The agency "has always overstated its potential future liabil-ities," he adds.

Though it would stabilize the plans in the short run, increasing the cost of maintaining pension programs could ultimately hurt the PBGC, pension experts point out. That's because it would encourage more companies to simply abandon their existing programs in favor of such less costly schemes as 401(k)s. Small businesses gave up traditional pension programs years ago, and big companies have been following suit. For example, GM and IBM have been using cash-balance pension programs, in which the size of contributions is determined primarily by salary, not years of service. But companies have to be careful how they introduce the programs. A federal judge ruled last week that IBM discriminated against older longtime employees in 1999 when it instituted cash-balance pensions.

In the short term, more corporations may decide it makes sense to boost contributions to underfunded plans, if only to polish their balance sheets; huge pension liabilities can be a red flag to investors. Waiting to be saved by a stock market rebound may not be the best strategy. "I think it's prudent for companies to acknowledge these problems and not just hope to invest their way out of it," says David Bianco, an accounting analyst at UBS. After all, as many Americans have discovered, the stock market isn't necessarily the safest place to keep a retirement nest egg.