The agency’s latest annual report drives that point home. For fiscal year 2011, the agency saw its deficit soar to the highest level in its 37‐​year history, to $26 billion from $23 billion the prior year. That, however, could be just the tip of the iceberg. The PBGC reported that its potential exposure to future pension losses from financially weak companies increased by $57 billion from a year ago to a staggering $227 billion.

PBGC director Joshua Gotbaum has pushed back against any attempt by American Airlines to terminate its pension plans, claiming it would saddle his agency with $17 billion in benefit obligations. Before killing its pension program, Gotbaum has said the airline must prove “there is no better alternative.”

This fierce argument underscores the vital role the PBGC plays for workers enrolled in more than 27,000 private‐​sector defined benefit pension programs. If an employer fails and is no longer able to meet its pension obligations, the agency steps in as trustee and assumes monthly payments to retirees. The agency is funded by investment returns as well as premiums.

Battered by a weakened economy, the PBGC found itself responsible for 152 new private‐​sector pension plans for the fiscal year ended Sept. 30. In addition to the new obligations, the agency was financially weakened by record‐​low interest rates, which actuarially magnify the present value of future benefit obligations.

Roadblocks to reform | The plight of the PBGC has hardly gone unnoticed in Washington. There have been calls for meaningful changes in recent years, but they have all foundered on the shoals of politics, expediency, and self‐​interest. Companies have steadfastly resisted reforms, particularly increases in the premiums they pay, for obvious reasons; unions have resisted on grounds that any change will serve to accelerate the already rapid decline of defined benefit pension plans; and Congress has failed to act because of the pressure that’s been applied by companies and unions—coupled with the fact that, like the federal budget deficit, it’s much easier for lawmakers to kick the PBGC can down the road.

That dereliction of duty is only making a bad situation worse. To be sure, there is no shortage of intelligent and far‐​sighted ways to make the PBGC a self‐​sustaining and actuarially sound entity with the ability to weather economic storms as well as repeated business and industry failures.

One of the most obvious ways—as unpalatable as it may be to certain sectors—is to raise premiums. It’s axiomatic that no insurance plan can hope to survive if it can’t charge adequately for the coverage it provides. The PBGC needs to be given the authority—which it currently lacks—to increase premiums (around $35 per participant) to a level that will prevent the need for a government‐​financed rescue. President Obama has proposed the PBGC be granted such powers.

More than just a higher flat‐​rate premium spread across all participants, however, the PBGC should have the authority to weigh the risk of a pension plan in its premium calculations. This would be based on such factors as the performance of its investment portfolio, its pension funding percentage, and the overall health of its corporate sponsor. Another change that deserves strong consideration is capping the maximum PBGC benefit (currently $54,000 a year per participant), at least until the agency has regained its financial footing.

How to finesse the gridlock in Washington? One way is to replicate the successful model put in place by Congress in 1988 to deal with the highly sensitive issue of military base closings. Using that process, the president would appoint an independent panel to hold hearings, conduct research, and make concrete proposals to strengthen the PBGC. Those proposals would be submitted to the president who, if he approves, would send them to Congress. If legislators fail to act on them within 45 days, they would automatically become law.

In the end, the issue is this: Does the government have the foresight, courage, and good sense to address the metastasizing PBGC problem now, or will we continue to dither until the only option left is a taxpayer bailout rivaling that of AIG, Fannie Mae, Freddie Mac, and other institutions deemed “too big to fail”?