INTERIM DIRECTOR'S MESSAGE

If one looked only at the number of participants in newly terminated plans, fiscal year 2007 would have appeared to be the quietest in recent memory for the Pension Benefit Guaranty Corporation. In all other respects, however, the PBGC's high pace of activity and level of productivity continued unabated. The result was a year in which the financial condition of the PBGC's single-employer insurance program improved while that of its separate multiemployer plan insurance program worsened, and the legal framework for the pension insurance program and defined benefit pension system underwent significant legislative changes to improve the financial health of both systems.
With fewer plan terminations than in any of the preceding five years, the PBGC took responsibility for the pensions of 46,000 people in 2007—about one-sixth the number the Corporation took in during 2005. The PBGC's workload, however, remained at peak levels as it provided for the needs of some 1.3 million people receiving or owed benefits under the pension insurance program. The PBGC's staff continued to respond effectively to this workload and issued more than 152,000 final benefit determinations. This was the second highest total of final determinations issued in one year in the PBGC's 32-year history.

I also am pleased to report that the PBGC received unqualified opinions from the Corporation's auditors on its financial statements for the 14th consecutive year and on its internal controls for the 3rd consecutive year. However, in contrast to the generally positive developments in the Corporation's insurance operations, there were mixed results on the financial front.
Claims against the single-employer insurance program were much reduced in 2007—new terminations resulted in claims against the insurance program totaling $527 million compared to the nearly $10.7 billion recorded in 2005. In addition, the Corporation was able to record a large credit for plans previously recorded as probable losses that are no longer classified as such due to newly enacted Pension Protection Act (PPA) provisions. Consequently, the single-employer program reported net income of more than $4.6 billion, which reduced the program's deficit to $18.1 billion.

The multiemployer program did not fare as well in 2007. That program reported its second largest annual net loss ever due to new probable losses from expected future financial assistance to insolvent plans. As a result, the multiemployer program's deficit increased to $739 million. Despite this deficit, the program has enough assets to continue providing assistance for a number of years. In addition, the pension reform legislation enacted in 2007 included provisions targeted at improving the funding of multiemployer plans and strengthening other aspects of the multiemployer plan system.

There were other noteworthy developments throughout the Corporation. The PBGC dealt with six major plan sponsor bankruptcies throughout the year and, through litigation and negotiations, achieved a number of favorable settlements. The settlement with United Airlines alone provided the PBGC and United Airlines workers with the largest recovery ever achieved by the PBGC although the case also presented the PBGC with its largest claim and loss from a single plan sponsor.

The PBGC also devoted considerable effort to its automated applications and online services. The Corporation completed the modernization of its major financial systems by implementing a new Consolidated Financial System that integrates the PBGC's various subordinate financial systems. In doing so, the Corporation has addressed a long-standing reportable condition identified by its auditors while setting the groundwork for the integration of other major information systems over the next several years. The PBGC also made progress in its development of a new automated premium accounting system. And, the utility and efficiency of the PBGC's online self-service application for electronically calculating and paying premiums due the insurance program enabled the Corporation to implement mandatory e-filing of premiums during 2007 as a means of eliminating paperwork and easing plan administrators' filing burden.

Finally, as mentioned earlier, the Administration's efforts to secure much-needed pension reforms bore fruit in 2007 with the passage of the Deficit Reduction Act of 2005 and the PPA. The Deficit Reduction Act increased premiums for both of the PBGC's insurance programs, marking the first increase in the flat-rate single-employer premium since 1991 and the first increase in the multiemployer premium since 1988. The PPA made comprehensive reforms to the nation’s pension system. As President Bush stated upon signing the PPA into law, "This legislation strengthens the pension insurance system and ensures that workers will receive better information about their pension plans." The President also made an observation that bears repeating: "The problem of underfunded pensions will not be eliminated overnight. This bill establishes sound standards for pension funding yet, in the end, the primary responsibility rests with employers to fund the pension promises as soon as they can."

The hard work of implementing the new reforms is still ahead of us. The measures now being taken offer new hope for the future but, for now, the defined benefit system remains under stress. As we work to implement the reforms, I want to assure the PBGC's customers and all stakeholders in the defined benefit pension system that the PBGC will continue to act in their best interests as it carries out its mission of protecting the retirement security of America’s workers and retirees.

Vincent K. Snowbarger
Interim Director

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