WASHINGTON—The Pension Benefit Guaranty Corporation today released its annual report for fiscal year 2011, which shows the agency's deficit increased to $26 billion as of year-end, a $3 billion increase from the $23 billion reported last year. This is the largest deficit in PBGC’s 37-year history.
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.
"The majority of pension plans are OK but, as our deficit growth shows, we think that some will lack the funds to pay benefits," said PBGC Director Joshua Gotbaum. "When that happens, PBGC insurance will be there to help."
Working to Preserve Pensions
In addition to financial information, the annual report details how PBGC worked to help preserve and strengthen pensions.
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. 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. Among the companies were Visteon, Chemtura Corp., and FairPoint Communications Inc.
PBGC Insurance Programs
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.
PBGC administers two pension insurance programs.
Single-Employer Insurance Program 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 25,000 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.
Multiemployer Insurance Program 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 percent chance of becoming insolvent by 2020, and a nearly 30 percent chance of insolvency by 2030.
The 2011 deficit is the largest year-end 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.
PBGC's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The financial statements for fiscal year 2011 received an unqualified audit opinion for the 19th consecutive year. Clifton Gunderson LLP performed the audit under contract with the Corporation's Inspector General, who oversees the audit.