Federal agency takes over Circuit City pensions

Circuit City pensions

The federal Pension Benefit Guaranty Corp. yesterday took control of the pension plan covering more than 21,000 former employees of defunct electronics retailer Circuit City Stores Inc.

The quasi-government agency stepped in to manage Circuit City's plan because it said the bankrupt Henrico County-based company does not have the wherewithal to pay benefits.

The pension agency estimated that Circuit City's pension plan is 82 percent funded, with $284.9 million in assets but owing $349 million in benefits. It said it will cover all but $2 million of the $64 million shortfall.

"Although your company has failed, your pension is safe," Vince Snowbarger, acting director of the PBGC, told former Circuit City employees in a video.

Circuit City filed for bankruptcy in November and closed its final store in March, laying off about 34,000 people. It is in the midst of winding down its operations.

Marc Hopkins, a spokesman for the PBGC, said yesterday that the agency tracks companies with defined pension plans that are having problems and steps in to make sure employees get their retirement money.

But not all retirees will get what they have been promised.

Employee benefits will be capped at $51,750 per year for a person who retired at 65. The cap varies based on retirement age. Anyone due to receive less than the cap will get 100 percent; the others will lose out.

The agency estimated that 84 percent of all covered pensioners receive less than the cap.

In the video, Snowbarger reassured pensioners that they will continue to receive their benefits as they had previously.

"If you are already retired, you will now receive your monthly pension benefit from the PBGC. There will be no interruption. Your check will come on time, next month, and every month," he said.

Nonretirees with pensions will get what is owed to them when the time comes for them to retire, he added.

All former employees participating in the pension plan will get a letter from the PBGC in the next couple of weeks explaining the changes.

There is some concern, though, that the agency will not be able to continue making payments in the future.

The PBGC insures private-sector pensions by charging premiums and then paying out benefits if the plan fails.

The PBGC is "woefully underfunded," said Ann C. Hodges, a professor specializing in labor law at the University of Richmond's law school.

She said mounting costs from recent corporate failures coupled with legacy payments to steel companies and the airlines have buried the PBGC in red ink.

The agency depends on investments and insurance premiums to operate, because it does not get tax money.

As of March 31, the PBGC saw its deficit grow by $22.5 billion to $33.5 billion, Snowbarger told the Senate Special Committee on Aging last week. That's the largest deficit in the PBGC's 35-year history.

About half the increase, or $11 billion, came from the completed or probable takeover of pension plans.

And, with the U.S. auto industry in disarray, the deficits facing the PBGC could continue to grow.

According to PBGC estimates, auto-related pensions are underfunded by about $77 billion. Of that, the agency would guarantee $42 billion.

To stem some of the bleeding, the agency told Congress that it was reviewing its investment policies and the way it assessed risk. The agency also said it was implementing about 130 recommendations made by the Office of the Inspector General in previous audits.

But Snowbarger reassured Circuit City pensioners yesterday that they would be fine and would get all their money.

"In these troubled economic times, you may wonder if the PBGC will be able to keep paying your benefit," he said in the video. "Let me assure you that we have the resources to meet all our obligations -- next month, next year, and far into the future."

Contact Louis Llovio at (804) 649-6348 or .