Human Capital & Careers

PBGC Reports $23 Billion Deficit

The pension insurer also warned that the total shortfall in insured single-employer plans remained in excess of $450 billion.
Stephen TaubNovember 16, 2005

There’s good and bad news on the pension front. On one hand, the Pension Benefit Guaranty Corp. (PBGC), which backs the payment of basic pension benefits for more than 44 million American workers, says its insurance program for single employers showed a deficit of $22.8 billion at the end of its September 2005 fiscal year.

That’s actually an improvement from the prior year’s record deficit of $23.3 billion, according to a report issued yesterday.

But senior government officials know very well that isn’t exactly a development to get excited over. “Unfortunately, the financial health of the PBGC is not improving,” says Bradley Belt, the organization’s executive director. “The money available to pay benefits is eventually going to run out unless Congress enacts comprehensive pension reform to get plans better funded and provide the insurance program with additional resources.”

Further, U.S. Treasury Secretary John Snow commented that the PBGC’s announcement is a reminder that “action to reform America’s pension system cannot wait any longer.” He called on Congress to pass pension reform legislation.

Indeed, PBGC’s report came less than a week after the Financial Accounting Standards Board voted to put a project on its agenda that would require companies to record overfunded or underfunded pension assets or liabilities on their balance sheets rather than in the footnotes. Such a revision in reporting could cause companies with heavy pension burdens to file for bankruptcy and strap the already overburdened the PBGC with new pension responsibilities.

As of September 30, the PBGC said that its single-employer pension insurance program had assets of $56.5 billion and liabilities of $79.2 billion. Besides on-balance-sheet liabilities, the PBGC’s exposure to losses from pension plans sponsored by financially weak employers rose to $108 billion from $96 billion the year before.

The insurance program’s finances benefited from a net gain of $529 million on its investments. To be sure, the single-employer program took in 120 terminated pension plans with a total of $10.5 billion in assets and $21.2 billion in liabilities, according to the report. All but $300 million of that liability in fiscal 2005, however, was already reflected on PBGC’s balance sheet at the end of fiscal year 2004.

Meanwhile, the PBGC warned that the total shortfall in insured single-employer plans remained in excess of $450 billion.

The PBGC’s separate insurance program for multiemployer pension plans posted a net loss of $99 million in fiscal year 2005, resulting in a fiscal year-end deficit of $335 million, compared with $236 million a year earlier. Overall, the multiemployer program has about $1.2 billion in assets to cover $1.5 billion in liabilities.

The deterioration in the program’s financial condition stems mainly from higher losses for future financial assistance the PBGC expects to provide to multiemployer plans ($204 million), offset by investment earnings ($79 million) and premium income ($26 million).