PBGC Change Reduces Pension Obligations for Some

March 18, 2013 (PLANSPONSOR.com) – A new policy for the Pension Benefit Guaranty Corporation (PBGC) saved some companies nearly $1 billion in pension obligations.

The agency announced shifting its enforcement policy, away from companies unlikely to default on their pensions, benefited about 50 businesses by almost $1 billion since the start of a pilot program announced in November. The new approach screens out financially sound companies and small plans with less than 100 people, which excludes 92% of businesses that sponsor plans from the agency’s enforcement efforts (see “PBGC Announces Shutdown Enforcement Changes”).  

PBGC Director Josh Gotbaum told PLANSPONSOR that the agency thinks the risk to the PBGC if these plans need help in the future and are less funded is minimal. “That’s why we’re giving them a break to begin with,” he said, adding that a much greater risk is that companies will decide to stop offering pensions entirely.    

“It’s important that the business community knows they have a partner in keeping traditional pensions going. I think we’re sending that message by not enforcing on 92% of our customers,” Gotbaum added.   

The shift in policy exempted financially sound companies such as Anheuser-Busch InBev, Procter & Gamble Co., and Whirlpool Corp., from having to address pension liabilities after ending operations at their work sites. Under the pilot program, PBGC didn’t enforce pension liabilities of about $475 million on 30 companies that were financially sound.  

Additionally, the agency ended pre-existing enforcement agreements originally valued at $450 million with 17 companies because they were unlikely to default on pension benefits for their workers and retirees.  

“The worst result for employees is to have no employer plan at all,” Gotbaum said. “If companies think it’s too much trouble to offer lifetime income through pensions, they’ll stop doing it.  We want to preserve pensions by reducing the hassle necessary to offer them.”