By Janice Revell

(FORTUNE Magazine) – IMAGINE, FOR A MOMENT, THE FINANCIAL prospects of an insurance company that charged the same premium to the owner of a mobile home on the hurricane-battered Florida coast as it did to the owner of a brick house in Idaho. No insurer would agree to such an arrangement. But that's exactly the kind of wacky scenario that is playing out within the Pension Benefit Guaranty Corp. The federal insurer of defined-benefit pension plans for 44 million workers and retirees is being stretched to a breaking point. The culprit? The airline industry of course.

The latest salvo was fired by US Airways, which said in its September bankruptcy filing that it would be "irrational" to keep making contributions to its underfunded pension plans, since it "provides no benefit" to helping the company stay alive. Meanwhile, United Airlines, which is currently in bankruptcy, is widely expected to terminate its four pension plans. Over the past 30 years United has paid a total of $50 million in premiums to the PBGC but will be saddling the agency with a $6.4 billion claim if it terminates the plans, while US Airways had paid $29 million and would put the PBGC on the hook for $2.8 billion.

In theory, companies with underfunded pension plans are supposed to kick in more money to compensate for the additional risk they pose. But the system is so full of Congress-enacted loopholes that that is rarely the case. According to former PBGC chief economist Richard Ippolito, companies with underfunded plans are currently paying only about 5% of their fair share. Financially strapped companies whose bonds are rated "junk" pay identical premium rates as those that have AAA credit. The system also ignores the additional risk posed by companies that engage in risky investment strategies to shore up their shaky pension plans.

The result is that healthy plan sponsors like GE and IBM are getting the shaft. As more and more pension sponsors declare bankruptcy, the healthy companies could be facing increased premiums. In 2003 alone, the PBGC had to pay pension benefits totaling $2.5 billion but took in less than $1 billion of premium income. "I'm deeply concerned that more and more employers may decide that the rational thing to do is to follow others to the exit," says James Klein, president of the American Benefits Council. If US Air and United bail, Delta and others would almost have to follow suit.

As for the PBGC, the agency must rely on Congress to set premiums. "The level of moral hazard plaguing the pension insurance system is staggering," charged irate PBGC head Bradley Belt during a speech in August. "Simply put, management and labor at financially troubled companies have a powerful temptation to make promises that they cannot or will not fund." Left unchecked, that temptation could put an impossible burden on every big company, not just the ones in trouble. -- Janice Revell