PBGC Funding Gap Ballooning as Plan Terminations Increase
In testimony prepared for the U.S. Senate Special Committee on Aging for a Wednesday hearing (see Senate Committee Weighs in on PBGC ), Vince Snowbarger, acting director of the Pension Benefit Guaranty Corporation (PBGC), said the agency was hit with $11 billion for completed and probable terminations, about $7 billion from the decrease in the interest rate used to value liabilities, $3 billion from the declining markets, and about $2 million in other charges.
The deficit figure, as of March 31, compares to $11 billion the year before (see PBGC Funding Deficit Narrows, But… ) and represents the largest in the agency’s 35-year history, the PBGC said.
“The PBGC has sufficient funds to meet its benefit obligations for many years because benefits are paid monthly over the lifetimes of beneficiaries, not as lump sums,” said Snowbarger in his written testimony. “Nevertheless, over the long term, the deficit must be addressed.”
A Rapidly Expanding Caseload
In the first half of the fiscal year that began in October, the PBGC took on almost four times the number of participants as it did in all of 2008.
The final half of the 2009 fiscal year is likely to get even worse, Snowbarger testified. He said the agency is “closely monitoring” auto manufacturing and supply where the agency estimates there is a combined deficit of $77 billion, of which $42 billion would be guaranteed in the event of plan terminations (see Outgoing Pension Insurer Director Cautions about Carmaker Shortfalls ).
The pension insurer also faces increased exposure
from weak companies across all sectors of the economy,
including retail, financial services and health care, the
agency said.
Also, Snowbarger told lawmakers notes that as of April
30, the PBGC’s investment portfolio consisted of 30%
equities, 68% bonds, and less than 2%
alternatives.
According to a Bloomberg news report, the agency will also face some criticism at the Senate hearing with testimony expected from Barbara Bovbjerg, associate director of the Government Accountability Office, who plans to tell the committee that the PBGC’s board is failing to provide adequate oversight and direction (see PBGC Programs Designated High-risk by GAO ).
Suppporting the System
One trade group said the deficit numbers should prompt quick action by President Obama and lawmakers.
“The $33.5 billion dollar projected deficit of the Pension Benefit Guaranty Corporation (PBGC) should prompt President Obama and Congress to strengthen the voluntary employer-sponsored defined benefit pension plan system,” American Benefits Council President James A. Klein said in a statement. “The key to shoring-up the employer-sponsored defined benefit pension system is to immediately address the challenges companies face in meeting drastically unanticipated increases in pension obligations caused by the recent economic turmoil. We urge the President and Congress to enact defined benefit plan funding relief as soon as possible so companies can navigate the current economic downturn and maintain their plans.”