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PBGC Annual Report 2010

Message from Director Josh Gotbaum

Providing Security in Uncertain Times

Even as a fledgling economic recovery slowly takes hold, Americans face uncertainty: uncertainty about the economy; uncertainty that their companies and their jobs will last beyond the next paycheck; and uncertainty about when and how government efforts to help will work.

Throughout this uncertainty, PBGC continues to help. Thirty-six years ago Congress set us up to protect and insure pension plans, and make sure workers' benefits get paid. That remains our mission:

  • We work with companies to keep their pension plans. Last year PBGC staff negotiated with dozens of companies, both in bankruptcy and otherwise, to preserve their plans. Partly as a result 250,000 people will keep their pension plans that otherwise might not.
  • When plans do fail, we step in and make sure benefits keep getting paid. We work to ensure that retirees get the full benefits provided by law—on time. Over the years we’ve become responsible for almost 1.5 million people in 4,200 failed plans. Every month, on average, we pay $467 million for pensions for 801,000 retirees. PBGC is also responsible for future payments to almost 700,000 who have not yet retired. During FY 2010, we assumed responsibility for 109,000 additional workers and retirees in 172 failed plans.
  • We implement pension laws, and work with the President and Congress to improve them. In FY 2010 we worked with both the private sector and other government agencies to implement the funding provisions provided by the Pension Protection Act of 2006, and, working with other agencies, helped Congress revise it. We will continue to provide policymakers with the information they need to decide if and when future changes are necessary.

We currently protect the retirement hopes of 44 million Americans in more than 27,500 ongoing pension plans. When a PBGC-insured plan cannot keep its pension promises, PBGC makes sure the plan’s participants get their benefits, up to the limits of federal pension law.

Working to Preserve Pension Plans

PBGC tries, first, to preserve plans and keep pension promises in the hands of the employers who make them. Every plan retained by its sponsor is a victory both for PBGC and for the plan’s participants.

Early Warning: Stepping in Before Plans Fail

When companies undertake major transactions that might threaten their ability to pay pensions, PBGC negotiates protections for their pension plans. During FY 2010, PBGC monitored more than 1,000 large companies to identify such transactions. When appropriate, PBGC works with companies to arrange additional financial protection for their plans.

Similarly, when major layoffs or plant closures threaten a plan’s viability, PBGC steps in and works to negotiate protection for the plan. In FY 2010, we opened 129 such cases, and secured an additional $250 million for participants in 20 companies’ pension plans. Since 2006, we have negotiated with sponsors for added protection totaling more than $644 million, strengthening the pensions of more than 76,000 workers and retirees.

Preserving Plans in Bankruptcy

If a company enters bankruptcy, PBGC becomes an active advocate, urging reorganizing sponsors to keep their plans if possible. In FY 2010, PBGC’s efforts ensured that plans sponsored by LyondellBasell Industries, Smurfit-Stone, Lear Corp., and more than 30 other companies survived Chapter 11 bankruptcies. Their 250,000 employees and retirees continue to enjoy their full benefits, and are still protected by PBGC insurance coverage.

Stepping in to Ensure Pensions if Plans Fail

If a plan cannot be preserved, then PBGC will pay its beneficiaries. For 36 years we have stepped in to pay their benefits — on time, each and every month, and without interruption. In FY 2010, this proud tradition continued: we made 8.5 million payments totaling $5.6 billion.

Preserving Multiemployer Plans

Multiemployer plans are different and more complicated than single-employer plans, and PBGC’s multiemployer pension insurance works very differently from our single-employer program. For decades, multiemployer plans were in relatively good health, even in the face of industry decline. Unfortunately, for many multiemployer plans, that is no longer true. By FY 2010, many multiemployer plans had become substantially underfunded.

This will, of course, increase PBGC's obligations with respect to such plans. As of September 30, 2010, our estimate of our possible future obligations increased to $20 billion.

However, our focus now is on what measures might preserve these plans. It is not yet clear what those measures will be, but PBGC has begun developing the tools to analyze them. In FY 2010, we developed and introduced a new multiemployer version of our Pension Insurance Modeling System. We have also begun discussions with multiemployer plans and others to secure the information that will be necessary to develop potential solutions.

Protecting Our Financial Integrity

Despite PBGC’s efforts to preserve pensions, in FY 2010 147 underfunded single-employer plans did terminate, most often in bankruptcy. These included plans sponsored by Crucible Materials, Fraser Papers, Hartmarx, and St. Vincent Catholic Medical Centers.

When pension plan sponsors cannot maintain their plans, PBGC does more than just assume responsibility for benefit payments. We also take over the assets of those plans, and fight in court on behalf of participants and other stakeholders to recover the maximum possible amount from sponsors of those plans. In FY 2010 PBGC assumed $1.8 billion in assets from failed plans, and recovered additional assets of $246 million from plan sponsors to help pay for benefits.

Staying Accountable, to Pensioners and the Public

Throughout our 36 years, PBGC has worked to provide our assistance in ways that are not only compassionate, but also professional and accountable. In that tradition of accountability, this report offers a complete accounting of our operating and financial performance.

Measuring Our Performance

Each year, we set standards for operating performance in our annual performance plan. The included performance report describes these standards and our FY 2010 results in detail, beginning on page 2. It covers the benchmarks we use to satisfy ourselves and the public that we are:

  • Paying benefits as accurately and quickly as possible. In FY 2010, we were able to reduce our backlog of benefit determinations and reduce the average age of unissued benefit determinations from 1.5 years to 1.2 years.
  • Meeting the needs both of pension plans and the participants in those plans. In FY 2010, our customer satisfaction scores, measured by the independent surveys of ACSI, remained well above most federal agencies and private businesses.
  • Investing the funds entrusted to us wisely. In FY 2010, the investment firms we chose outperformed their benchmarks. For the year, PBGC realized a 12% annualized return on total invested funds (excluding transition accounts).
  • Maintaining our status as one of the best agencies in the eyes of our employees. In surveys performed by the US Office of Personnel Management, PBGC scored no lower than seventh among 82 federal agencies on any measure of employee satisfaction.

Financial Report

Our financial statements report on the obligations we have assumed to date for broken pension promises. During FY 2010, we paid about $ a10 9f2 5.6 billion in benefits owed to retirees and their surviving beneficiaries, because their pension plans could not.

As a result of many factors, our obligations (“liabilities”) exceed the assets currently available to pay them. As of September 30, 2010, we had single-employer assets totaling $77.8 billion, an increase of $10.2 billion from the close of the previous fiscal year. Our single-employer liabilities (measured in present value though they will be paid over decades) totaled $99.4 billion; this compares to total liabilities of $88.7 billion in 2009. The net of these positions is a single-employer deficit of $21.6 billion, an increase of $500 million from the prior year. Likewise, the multiemployer insurance program experienced a $600 million decline, bringing its FY 2010 deficit to $1.4 billion, with $1.6 billion in assets to cover about $3 billion in liabilities.

In part, this financial position is the result of inadequate plan funding and misfortunes that have befallen plan sponsors. In part, it is a result of the fact that the premiums PBGC charges are insufficient to pay for all the benefits that PBGC insures, and other factors.

Since our obligations are paid out over decades, we have more than sufficient funds to pay benefits for the foreseeable future. Nonetheless, we cannot ignore PBGC’s future financial condition any more than we would that of the pension plans we insure.

More details of PBGC’s financial condition can be found in our financial statements and related materials. The financial and performance data included in this report are reliable and complete. The independent auditor’s reports are also included.

We are particularly pleased that, in FY 2010, PBGC continued its unbroken 18-year record of unqualified (clean) audits. In addition we should note that our independent auditor and Inspector General have, appropriately, raised issues about the security of our information and the integration of our financial systems. We have begun a multi-year program to remedy these weaknesses.

An Ongoing Commitment to Help

PBGC has a long proud history of helping people in troubled times, giving them an important source of security. Our challenge is to continue to do so, professionally and accountably — to take advantage of time and technology to help millions of Americans achieve a more secure future, however uncertain that future may, at times, appear.

Josh Gotbaum
November 12, 2010