PBGC 2000-2004 Losses Labeled 'Unprecedented'

May 27, 2005 (PLANSPONSOR.com) - The Pension Benefit Guaranty Corporation (PBGC), the nation's insurer of private-sector pension plans, has suffered "unprecedented" losses in the last five years, according to agency data released Friday.

In releasing its latest  Pension Insurance Data Book , the PBGC said that claims from failed single-employer pension plans were $14.3 billion in 2000-2004, which is 70% of the $20.6 billion in total claims since the agency’s 1974 creation.

The most recent surge of claims from failed plans dwarfs anything in the agency’s history with the 2000-2004 total a whopping 18 times larger than the $783 million in claims booked in 1995-1999, the PBGC said in a news release.

In recent years, the agency has been particularly hard hit with failed pension plans from the steel and auto sectors, with a growing problem in the airline industry. For example, the agency recently agreed with United Airlines to assume $6.6 billion in liabilities by taking over the air carrier’s pension programs (See    United, PBGC Hammer Out Plan Takeover Pact ).  

“These data highlight the unprecedented challenges facing the defined benefit system and the pension insurance program,” Executive Director Bradley Belt said in the    news release . “While most companies should be able to honor their promises to workers and retirees, far too many are reneging on those promises and shifting costs to the pension insurance program.”

Other data examples from the latest PBGC release include that:

  • the PBGC’s single-employer program now insures about 29,600 pension plans, continuing a 20-year decline.  The program insured 112,000 plans in 1985.
  • in 2004 the PBGC disbursed more than $3 billion in benefit payments to 517,000 retirees, up from $2.5 billion to 459,000 individuals the year before.
  • variable rate premiums, paid by chronically underfunded plans, reached a record $800 million in 2004, up from $294 million in 2003.
  • some 45% of PBGC-insured pension plans paid the variable rate premium, and underfunding in those plans reached an all-time high of $89 billion.

The Bush administration has made stepped-up PBGC funding one of the primary features of its pending pension reform proposal to Congress (See  Chao Releases Administration DB Reform Proposal ). However, numerous critics have blasted the proposal, saying that it would do more harm to a shaky pension system than it would help (See  ERIC: Say ‘No’ to PBGC Premium Hike  ).