The PBGC says that the insurance program for pension plans sponsored by a single employer swung from a $7.73 billion surplus at the end of fiscal year 2001 to a $3.64 billion deficit at the end of fiscal year 2002.    The $11.37 billion net loss is the largest in the federal pension insurer’s 28-year history.

Of the $11.37 billion in losses for 2002, completed and probable pension plan terminations accounted for $9.31 billion, or more than 80%, of the total, according to the PBGC.   The agency also noted that another key factor was the decline in interest rates, which increased the program’s liabilities by $1.65 billion.

Storm Clouds

Still, “The PBGC has sufficient assets to pay benefits to workers and retirees for a number of years,” said Executive Director Steven A. Kandarian. “But given the amount of underfunding in pension plans sponsored by financially troubled employers, we must examine every available option to strengthen the pension insurance program for the long term.”

Not that the PBGC is the only one with problems.   Kandarian said US companies’ pension plans currently are underfunded by some $300 billion, with the falling stock market and falling interest rates hurting plan assets (see  America’s Pension Crisis ).

Kandarian said the agency was working with Bush administration officials to draft reforms that would improve the pension outlook. But some ideas under discussion, such as changing the interest rates used in pension calculations, would need congressional approval.

On the other hand, the PBGC is accustomed to running at a deficit level, having spent its first 21 years running in the red.   For six years, from 1996 through 2001, the agency recorded a surplus.

Steel “Belted”

The steel industry accounted for most of the PBGC’s problems, making up $7.57 billion of the $9.31 billion in losses the agency assumed from pension plan terminations last year.   The steel industry has made about 58% of the claims against the agency since its inception in 1974, even though the industry makes up less than 3% of the workers covered by PBGC.

Under generally accepted accounting principles, the PBGC recognizes as a loss both actual and probable pension plan terminations. During fiscal year 2002, $5.91 billion of the $9.31 billion in losses were from “probables” – and $5.16 billion of the probables came from the PBGC’s assumption of National Steel and Bethlehem Steel.

Investment Performance

The single-employer program recorded an investment gain of $170 million in fiscal year 2002, compared with a loss of $843 million the year before. The program’s equity investments produced a loss of $1.9 billion in 2002, while its fixed-income investments gained $2 billion.

The PBGC became trustee of 144 pension plans covering 187,000 people, up from 104 plans and 89,000 participants the year before, the largest one-year increase in the number of people owed guaranteed benefits by the agency.   However, the PBGC projects another record number of participants in fiscal year 2003.

The PBGC paid a record $1.5 billion in benefits, nearly 50% higher than the previous year.

The PBGC was created under the Employee Retirement Income Security Act of 1974 (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.