This is the largest deficit in PBGC’s 37-year history. Factors that contributed to the worsening numbers included lower interest rates used to measure benefit payment obligations and anticipated increases in multiemployer financial assistance.
On the plus side, PBGC works with companies, in and out of bankruptcy, to preserve their plans. When bankrupt companies reorganize, PBGC’s priority is to keep pensions going and protect retirees. PBGC Director Josh Gotbaum told attendees of a media conference that the agency is pleased to report that, in FY 2011, 19 companies had their operations emerge from bankruptcy with ongoing plans, keeping about $2 billion in pension promises in the hands of the companies that made them, and preserving benefits for more than 74,000 workers and retirees.
Gotbaum noted that it is always better for employees to keep pensions in the hand of sponsors, especially since the agency only pays retiree benefits up to a certain annual limit.
In 2011, PBGC paid nearly $5.5 billion in benefits to 873,000 retirees whose plans had failed; 628,000 future retirees will receive benefits when they become eligible. In 2011 the agency assumed responsibility for the benefits of 57,000 people in newly failed plans.
Again Gotbaum said the agency is pleased to report that for these 57,000 retirees, benefit checks continued uninterrupted.The report includes results of customer surveys put out by the agency to both clients whose plans are insured with the PBGC and retirees who receive benefits from the agency. Gotbaum noted that the retiree satisfaction measured by the survey is at an all-time high, with a score from retirees of 90.
PBGC’s Financial Future
PBGC insures pension benefits of private pension plans covering some 44 million of America’s workers and retirees. As a result of plan failures, the agency is already responsible for the retirement benefits of about 1.5 million and its obligations (liabilities) for these and other purposes totaled $107 billion. PBGC has $81 billion in assets on hand to cover these obligations, the bulk of which are benefits to be paid over many years.
The remainder is expected to be covered by future premiums paid by pension plans for their insurance and from investment returns. The Administration has proposed that PBGC premiums be raised, and that the PBGC’s Board of Directors be authorized to set premiums based on the circumstances of individual plans and their sponsors (see Groups Call on Congress to Reject PBGC Premium Increase).
The deficit in the program for single-employer pension plans widened to almost $23.3 billion, up from $21.6 billion in 2010. In 2011, 152 underfunded pension plans terminated, with PBGC stepping in to cover their benefit promises. The program insures the pensions of nearly 34 million workers and retirees in more than 27,000 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 $227 billion from the $170 billion reported in fiscal year 2010.
The separate insurance program for multiemployer pension plans posted a deficit of nearly $2.8 billion, almost double last year’s $1.4 billion. PBGC does not become trustee of multiemployer plans, but instead offers financial assistance to insolvent plans. In 2011 such assistance totaled $115 million to 49 plans. Overall, the multiemployer program insures the pensions of about 10 million workers and retirees in some 1,500 plans.
The agency reported in its FY2010 Exposure Report that its Pension Insurance Modeling System projects the multiemployer program has a 6% chance of becoming insolvent by 2020, and a nearly 30% chance of insolvency by 2030 (see PBGC Report Forecasts Higher Deficits).
Gotbaum noted that although there will be more plan failures in the future, the plans that have gone under represent a minority of pension plans. Most plans are sound, and most plan sponsors can financially make it through economic down times such as the recent recession.
More information is available at http://www.pbgc.gov.