PBGC Databook Offers Insights on Termination

The PBGC, which insures the nation’s private sector defined benefit pension plans, noted that its single-employer program operated at a funding deficit from its inception until 1996.   At that point, the program had a growing surplus that reached a historic high of $9.7 billion in 2000, before falling to a record deficit of $23.3 billion in 2004.   As of the end of fiscal 2007, the deficit was down to $13.1 billion.  

The PBGC Data Book notes that the rapid decline from 2000 to 2004 resulted from several very large losses (primarily from steel and airline industry plans – in fact, terminations by firms in the Primary Metals and Air Transportation industries have accounted for almost 75% of PBGC’s claims), lower interest rates that raised the value of PBGC’s liabilities, and declining stock prices.

In 2007, PBGC made periodic payments to almost 630,000 payees and lump sum payments to 17,000 participants, totaling nearly $4.3 billion.   An additional 534,000 individuals are eligible for future PBGC benefit payments.

Standard Terminations

In fiscal 2007 (the PBGC functions on a September 30 year-end), 1,225 single-employer plans ended in standard terminations, representing about 4% of all single-employer plans that the agency insured at the beginning of the year. Additionally, in fiscal year 2007, the agency became trustee of 110 insolvent plans that were sponsored by financially distressed employers.

A majority of the single-employer plans that ended in standard termination during FY 2007 were small plans. In fact, a full 75% had fewer than 25 participants, and more than 90 percent had fewer than 100 participants, according to the PBGC.

The plans that completed standard terminations during FY 2007 covered about 73,500 participants, and more than 33,000 of these participants were in a mere dozen plans that had 1,000 or more participants.   Fewer than 7,000 participants were in the 914 terminated plans with fewer than 25 participants, but these represented 7% of the 95,000 participants who were in all such small plans at the beginning of 2007, according to the PBGC.  

On PBGC Form 500, plan sponsors may designate multiple reasons for plan termination, and if the sponsor gives multiple reasons, it is asked to rank these reasons from most important (primary) to least important. Of these  primary reasons , according to the PBGC:

• Sponsors most frequently reported that the company was restructuring its retirement program - a reason that applied across all plan sizes, although the PBGC says it was given by a much smaller percentage of the smallest plans (those with fewer than 25 participants) than of the larger plans.
• Sponsors also frequently cited the expense of the benefits (cited by smaller plans somewhat more often than larger plans), adverse business conditions (given by small plans twice as often as large plans), expense of plan administration, the sale of the company or a component (cited by twice the percentage of large terminating plans as small), and liquidation.
• "Other reasons" were often cited by sponsors of small plans, including "not meeting the sponsor's needs" and the "retirement, illness, or death" of the business' owner, most frequently.

Freezes, "Framed"

Almost a third of the plans undergoing standard terminations in FY 2007 were hard-frozen at the end of their 2006 plan year (see 2006 Freeze Status for Plans Undergoing Standard Terminations in FY 2007 ).   The PBGC notes that, while small ongoing plans are generally more likely to be hard-frozen than larger ongoing plans, in fiscal 2007 larger plans closing out with standard terminations were more likely than smaller plans to have been hard-frozen prior to terminating.

In 2007, PBGC insured about 28,900 single-employer defined benefit plans, down from an all-time high of 112,000 plans in 1985.

Interestingly enough, while the universe of plans insured by PBGC has declined markedly in recent years, in fiscal 2007 the PBGC noted that, for the first time in two decades, the number of plans leaving PBGC's insurance coverage was roughly offset by the number of plans entering its coverage.   In fact, according to the Data Book, preliminary data indicate PBGC insured about the same number of plans at the beginning of 2007 as it did at the beginning of 2006. The increase in newly covered plans is the topic of an ongoing study whose results will be reported when the study is completed.

The Data Book is available on PBGC's Web site at.   Single copies of the publication may be obtained by writing to: PBGC Data Book, Room 12108,

1200 K Street NW , ,. Requests also may be submitted by FAX to (202) 326-4344. Email:Publications@PBGC.GOV.