PBGC Posts Record Deficit in FY2004

November 15, 2004 (PLANSPONSOR.com) - The Pension Benefit Guaranty Corporation (PBGC), the agency that rescues failed private-sector pension funds, posted a $23.3-billion deficit for fiscal year 2004, more than twice as much as last year's figure.

>In an  annual report released following the end of the corporation’s fiscal year on September 30, the PBGC announced that the number of people owed benefits moved to over one million people for the first time The company also paid over $3 billion in benefits. The agency’s deficit, which last year was $11.2 billion, reached $23.3 billion this year, according to Reuters.

>Of the $12.1 billion net loss for 2004, the PBGC stated that the two biggest factors were a $14.7-billion loss from completed and probable pension plan terminations, as well as a $1.5 billion charge for actuarial adjustments due to a change in mortality assumptions. Offsetting some of the costs, Reuters reported, is a $1.5 billion collection of premiums, and a $3.2 billion gain on investments.

>Overall, the PBGC had $39 billion in assets to cover $62.3 billion in liabilities for its single-employer insurance plan as of September 30. In addition, the PBGC calculated a ‘reasonable exposure’ number, which estimates the amount of unfunded benefits that exist in at-risk companies. The 2004 number estimates exposure at $96 billion, up $14 billion from 2003.

>The PBGC also runs a multiemployer insurance program. In 2004, the multiemployer plan gained $25 million, lowering the program’s deficit from $261 million to $236 million. The plan, which covers 9.8 million participants, improved its condition largely because of a decrease in loss from future financial assistance to multiemployer plans and an increase on investment returns, according to Reuters.   The program currently has $1.1 billion in assets and $1.3 billion in liabilities.

>When the figures from both plans are combined, the total number of participants owed benefits rose from 934,000 to 1.1 million in 2004. Total benefits paid out rose $500 million, to $3 billion, while the number of underfunded plans rose from 155 to 192.

>Although the report did not specify which plans took the largest swings at the PBGC coffers, it is widely accepted that the airline industry caused the agency to lose more this year than in years past with a spate of recent bankruptcies and pension plan terminations. Airlines, which often have large defined benefit plans for pilots, mechanics, and other industry-related professions, have recently had multiple issues with their pension plans (See US Airways: Employees ‘Shouldn’t Count’ on Pensions ).

>In the report, PBGC Executive Director Bradley Belt, who had been warning of such a deficit increase, urged Congress to act to get the agency back on track. Although he stated that the PBGC could provide benefits in the near future, he warned that Congress needed to act “expeditiously” if it was to work in the long-term, according to Reuters. A separate recently released report has stated that the federal agency will run out of funds by 2020 if action is not taken (See New Report Predicts PBGC to Run Out of Funds by 2020 ).