The PBGC recently released its annual report, which mentions a $36 billion deficit for the 2013 fiscal year. It also mentions that the deficit for its multiemployer insurance program grew by $3 billion (see “PBGC Deficit Grows to $36B”).
“The agency’s reported deficit is a projection based largely on unrealistic assumptions and does not reflect the actual health of the PBGC or the defined benefit pension system. It certainly should not be used to justify raising premiums, yet again, paid by pension plan sponsors,” says James A. Klein, president of American Benefits Council.
He says the council recommends that premiums not be raised or lowered based on year-to-year fluctuations caused largely by “short-term factors and inappropriate assumptions.”
The PBGC’s deficit, says Klein, is a snapshot measure of current assets minus liabilities and therefore does not accurately reflect the funded status of active ongoing plans. “All pension fund liabilities, including the PBGC’s, are overstated by the historically and artificially low interest rates of recent years. Keeping interest rates low is good policy to stimulate the economy, but it has the perverse effect of making very secure pension funds and the PBGC’s own situation appear underfunded,” he adds.
With proposals on the table, by both Congress and the White House, to raise PBGC premiums on plan sponsors, Klein cautions, “Doing so would further discourage plan sponsors from remaining in the system when the current low interest rate environment is already forcing employers to pour more money into plans that may never be needed. As more companies are forced to exit the system, the universe of plans from which premiums are collected further shrinks.”
The American Benefits Council is a national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system.
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