Human Capital & Careers

PBGC Reports Big Deficit Reduction

Future exposure to losses from pension plans may also decrease.
Stephen TaubNovember 16, 2006

The Pension Benefit Guaranty Corp. reported a big improvement in its financial position on Wednesday. The federal corporation created to guarantee payment of pension benefits said its deficit shrunk to $18.1 billion in fiscal year 2006, which ended in September, compared with the $22.8 billion shortfall recorded a year ago.

Officials attributed the $4.7 billion net improvement mainly to the airline relief provisions in the new Pension Protection Act that led to a sharp reduction in the amount of “probable” liabilities reflected on the agency’s balance sheet, the PBGC noted. “The PBGC’s financial condition appears to have stabilized for the time being,” said Interim Director Vince Snowbarger, in a statement. “Our current assets can cover pension payments coming due for a number of years into the future, and our exposure to additional losses has declined.”

As of September 30, the single-employer programs under the PBGC’s control reported assets of $60 billion and liabilities of $78.1 billion. What’s more, the PBGC said its potential future exposure to losses from pension plans sponsored by financially weak employers decreased to $73 billion, compared to $108 billion in 2005. In addition, the agency noted that the higher interest rates, and improved credit ratings and plan funding among some employers, were factors for the reduced risk of claims.

In response to the PBGC’s announcement, The American Benefits Council fired off a press release applauding the deficit’s decline. “This news comes as no surprise to us in light of last year’s rising interest rates and investment market returns that assisted in strengthening defined benefit plans’ funded levels,” said Council Vice President, Retirement Policy, Lynn Dudley, in a statement. Dudley also noted that it is important that the public understand that “the vast majority of defined benefit plans are well-funded and that the PBGC is stable.”

“The importance of maintaining and encouraging the defined benefit plan system, which includes cash balance hybrid plans, continues to be critical to retirement security for workers and their families,” Dudley added.