This was from the prepared testimony Steven Kandarian, the agency’s executive director (See Steve Kandarian ), gave to the US House of Representatives Committee on Education and the Workforceon Thursday. Kandarian said his testimony was meant to focus “on plan underfunding, the PBGC’s financial condition and the challenges facing the defined benefit system.”
Kandarian did not waste any time though in getting to the impact the past couple of years have had on the agency. Since fiscal 2002 came to a close, the PBGC has had a banner year in the increased number of pension funds it maintains. Overall, the agency assumed control over a record 144 pension plans covering 187,000 people and paid a record $1.5 billion in benefits, nearly 50% higher than 2001. Looking at the totals at the end of 2002, the agency was covering 783,000 pensioners in more than 3,100 plans. In fact, half of the 10 largest claims against the nation’s private pension plan insurer have arisen in the past three years (See Steel, Airlines Weigh on PBGC).
This has led to a funding turnaround of epic proportions at the PBGC, an agency thatreceives no taxpayer funding. Since the end of fiscal year 2000, the agency has gone from a surplus of $7.7 billion to a $3.6-billion deficit in March 2003 – a net loss of $11.37 billion, the highest in the agency’s 28-year history (See PBGC Reports Record Loss). Additionally, Kandarian said the storm clouds only continue to gather, as unaudited reports now place the deficit at the aforementioned $5.7 billion.
The PBGC’s underfunding problems under the weight of an increasing number of failing pensions are nothing new and led to the General Accounting Office (GAO) to designate the PBGC as “high risk” in July. With the new designation, the GAO placed the PBGC into its assembly of federal agencies “that need urgent attention and transformation to ensure that our national government functions in the most economical, efficient and effective manner possible,” according to the GAO news release. Typically, the agencies with the “high risk” label receive greater attention from GAO and are assessed in regular biennial reports (See GAO Designates PBGC ‘High Risk’ ).
This report led to US House of Representatives Education & the Workforce Committee Chairman John Boehner (R-Ohio) and Employer-Employee Relations Subcommittee Chairman Sam Johnson (R-Texas) to call for the need to hold the current round of hearings to examine the financial health of the agency.
In response to Kandarian’s testimony, House Education and Workforce Committee Chairman John Boehner (R – Ohio) said that it appears that PBGC “has enough resources to make benefit payments for the near future.” However Boehner did not throw caution entirely to the wind saying, ” There is a serious question of whether a taxpayer bailout of the PBGC would be necessary if the financial condition of the agency continues to deteriorate.”
Additionally, Employer-Employee Relations Subcommittee Chairman Sam Johnson (R – Texas) expressed concern about what may lie ahead. “My greatest fear is not the record deficits we’re hearing about today. My greatest fear is not what we know; it’s what we don’t know about looming liabilities of plans on the brink. What will we hear about next and how will we pay for it? We need to have a full and honest accounting for just how much help PBGC will need and how we can fix it.”
The PBGC was created under ERISA. It currently guarantees payment of basic pension benefits earned by 44 million American workers and retirees participating in about 32,500 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and by PBGC’s investment returns.
The full text of Kandarian’s testimony can be found at http://www.pbgc.gov/news/speeches/testimony_090403.htm .