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Greenspan Concerned About Pension IssuesBy JEANNINE AVERSA
The Associated Press
Thursday, July 21, 2005; 12:45 PM
SourceWASHINGTON -- Any more moves by companies to dump troubled pension plans on the financially strapped agency that insures them for working men and women would be troubling but shouldn't threaten the economy, Federal Reserve Chairman Alan Greenspan said Thursday
Greenspan made his remarks to the Senate Banking Committee after he delivered what may be his final economic outlook to Congress. He plans to step down early next year after 18 years on the job.
The Fed chief was asked by Sen. Jim Bunning, R-Ky., what the impact on the economy would be if more companies were to dump their pension plans on the Pension Benefit Guaranty Corp., an agency that is running a record deficit that tops $20 billion and which recently assumed the obligations of the United Airlines pension plans.
An additional pension burden for the PBGC "clearly is negative," Greenspan told Bunning. "I think it is a worrisome thing for American taxpayers, needless to say."
Private analysts and others worry that a taxpayer-funded bailout could happen at some point if the agency cannot get on firmer financial footing, especially if additional companies opt to dump their pension obligations.
The agency's operations are financed by insurance premiums, which are paid by companies that sponsor traditional pension plans. It also earns money from investments and receives funds from pension plans that it takes over. The agency is not funded through tax revenues.
Even with his concerns, Greenspan said he didn't foresee the pension system's financial problems threatening the health of the economy _ at this point.
"It's hard to see at this stage any spillover effects yet on economic forces. As large as the numbers are _ relative to a $12 trillion economy, obviously, they're not at a stage where it is critical," he said.
Various bills have been offered in Congress to shore up the PBGC.
On other issues, Greenspan said Congress doesn't need to create new laws to govern risky interest-only mortgages and other exotic home loans that are increasing in popularity.
Greenspan has issued several warnings about the potential perils these types of mortgages can pose to homeowners as well as lenders if home prices _ which are now surging _ suddenly fall, or if interest rates were to rapidly escalate.
"We don't need any legislative remedy. This is totally under the regulatory authorities of the banking agencies," Greenspan said.
The Fed chief said banking agencies are currently reviewing the situation. Banking authorities, he said, "are making decisions as to what, if any, guidance to the banking system we would endeavor to convey."
With home prices soaring in many local markets, some home owners are turning to risky mortgages _ and stretching their finances _ to buy a home that they otherwise could not afford, analysts say.,
If interest rates jump, some borrowers could have trouble making their mortgage payments.
In addition, a significant drop in the price of a house could leave some home owners with a mortgage that costs more than they could receive by selling their residence. That would leave them owing their mortgage lender money.
Greenspan repeated his interest in seeing Congress put limits on the now massive portfolio holdings of Fannie Mac and Freddie Mac. He warned anew that their huge debt could imperil U.S. financial markets.
Congress is exploring various proposals to rein in Fannie Mae, the No. 1 U.S. buyer of home mortgages, and its rival, Freddie Mac, which ranks as the second-largest buyer. They were created by Congress to inject money into the home-loan market. Fannie Mae and Freddie Mac buy mortgages and bundle them into securities for sale to investors worldwide.
While Greenspan didn't say by how exactly much he would like to see Fannie Mae and Freddie Mac's portfolios' trimmed, he said their holdings should be "significantly below" where they are now.
© 2005 The Associated Press