Factors that contributed to the worsening numbers included lower interest rates used to measure benefit payment obligations and anticipated increases in multiemployer financial assistance. “PBGC continues its work to preserve pensions, and to provide some of the best service anywhere,” said PBGC Director Josh Gotbaum, “but continuing financial deficits will ultimately threaten its ability to pay benefits.”
Gotbaum noted that the administration, like previous administrations, had proposed that Congress give Pension Benefit Guaranty Corporation’s (PBGC’s) Board the ability to set premiums. “We continue to hope that PBGC can have the tools to set its own financial house in order, the way other government and private insurers do.” PBGC’s assets on hand are sufficient to pay pension benefits for years, but Gotbaum noted that measures to reduce the deficit will be less disruptive if initiated sooner rather than later.
In FY 2012, the agency helped protect 130,000 people in American Airlines’ plans and in other plans in ongoing bankruptcies. It also helped to protect 37,000 people in plans sponsored by companies that emerged from bankruptcy without terminating their plans, including the Great Atlantic & Pacific Tea Company (A&P), Lee Enterprises and Houghton Mifflin Harcourt Publishing.
In 2012, PBGC paid nearly $5.5 billion in benefits to 887,000 retirees whose plans had failed; 614,000 future retirees will receive benefits when they become eligible. In 2012, the agency assumed responsibility for the benefits of 47,000 people in newly failed plans.
PBGC administers two pension insurance programs. The deficit in the program for single-employer pension plans widened to $29.1 billion, up from $23.3 billion in 2011. In 2012, 155 underfunded pension plans terminated, with PBGC stepping in to cover their benefit promises. The program insures the pensions of nearly 33 million workers and retirees in about 24,000 ongoing plans sponsored by private-sector employers. The single-employer program's potential exposure to future pension losses from financially weak companies increased to about $295 billion from the $227 billion reported in fiscal year 2011.
The separate insurance program for multiemployer pension plans posted a deficit of more than $5.2 billion, compared with $2.8 billion last year. PBGC does not become trustee of multiemployer plans, but instead gives financial assistance to insolvent plans. In 2012 this totaled $95 million to 49 plans. Overall, the multiemployer program insures the pensions of about 10 million workers and retirees in approximately 1,450 plans. PBGC estimates that, as of September 30, it is reasonably possible that multiemployer plans may require future financial assistance in the amount of $27 billion.
At a recent conference, Gotbaum called for new regulations for multiemployer programs (see "New Rules Needed for Multiemployer Plans").
Premiums have been set by Congress at levels that have been insufficient to cover the benefits PBGC must pay, the agency contends. Administrations of both parties had proposed that PBGC's Board, like other public and private insurers, be allowed to set its own premiums based on the circumstances of the individual plans and their sponsors. Basing premiums on risk would encourage and reward companies who keep sound traditional pension plans. Under this approach the majority of companies that are financially sound would not have their premiums raised solely because of someone else's underfunding.
Recently, the Government Accountability Office suggested that Congress consider revising PBGC's premium structure to better reflect the agency's risk from individual plans and sponsors (see "GAO Looks at Risk-Aligned PBGC Premiums").
PBGC's financial statements are prepared in accordance with generally accepted accounting principles. The financial statements for fiscal year 2012 received an unqualified audit opinion for the 20th consecutive year.
The report is available at http://www.pbgc.gov/res/reports/ar2012.html?cid=CPAD01ACNOV1620121.
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