WASHINGTON — The Pension Benefit Guaranty Corporation today issued its FY 2012 annual report, highlighting its efforts to preserve pensions at American Airlines and elsewhere, but also noting that its deficit increased to $34 billion, the largest deficit in PBGC's 38-year history.
"PBGC continues its work to preserve pensions, and to provide some of the best service anywhere," said PBGC Director Josh Gotbaum, "but continuing financial deficits will ultimately threaten its ability to pay benefits."
Gotbaum noted that the administration, like previous administrations, had proposed that Congress give PBGC's Board the ability to set premiums. "We continue to hope that PBGC can have the tools to set its own financial house in order, the way other government and private insurers do." PBGC's assets on hand are sufficient to pay pension benefits for years, but Gotbaum noted that measures to reduce the deficit will be less disruptive if initiated sooner rather than later.
Working to Preserve Pensions
PBGC always works to preserve pensions if possible. In FY 2012, the agency helped to protect 130,000 people in American Airlines' plans and tens of thousands more in other plans in ongoing bankruptcies. It also helped to protect 37,000 people in plans sponsored by companies that emerged from bankruptcy without terminating their plans, including the Great Atlantic & Pacific Tea Company (A&P), Lee Enterprises, and Houghton Mifflin Harcourt Publishing.
The annual report details other ways that PBGC works to help preserve and strengthen pensions.
Maintaining Quality Customer Service
Retirees who rely on PBGC for their pension benefits rate the agency as one of the best in government. PBGC has received a score of 89 on the American Customer Satisfaction Index (ACSI), more than 20 points above the government average (a score of 80 or higher is considered excellent, whether for a government agency or a private business). For retirees, the ease of applying for benefits and the reliability of monthly payments are of high importance, and they gave PBGC high ratings in both categories.
PBGC Insurance Programs
In 2012, PBGC paid nearly $5.5 billion in benefits to 887,000 retirees whose plans had failed; 614,000 future retirees will receive benefits when they become eligible. In 2012, the agency assumed responsibility for the benefits of 47,000 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 $29.1 billion, up from $23.3 billion in 2011. In 2012, 155 underfunded pension plans terminated, with PBGC stepping in to cover their benefit promises. The program insures the pensions of nearly 33 million workers and retirees in about 24,000 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 $295 billion from the $227 billion reported in fiscal year 2011.
Multiemployer Insurance Program The separate insurance program for multiemployer pension plans posted a deficit of more than $5.2 billion, compared with $2.8 billion last year. PBGC does not become trustee of multiemployer plans, but instead gives financial assistance to insolvent plans. In 2012 such assistance totaled $95 million to 49 plans. Overall, the multiemployer program insures the pensions of about 10 million workers and retirees in some 1,450 plans. PBGC estimates that, as of September 30, 2012, it is reasonably possible that multiemployer plans may require future financial assistance in the amount of $27 billion.
PBGC depends, not on taxpayer dollars, but on premiums paid by insured plans, investment income and assets from the recoveries of terminated plans.
About PBGC's Deficit
PBGC insures pension benefits of private pension plans covering nearly 43 million workers and retirees. As a result of plans that have already failed, the agency is already responsible for the retirement benefits of about 1.5 million people and its obligations ("liabilities") for these and other purposes totaled $119 billion, the bulk of which are benefits paid over many years. PBGC has $85 billion in assets on hand to cover these obligations. The deficit is the net of these amounts.
The 2012 deficit is the largest year-end deficit in PBGC's 38-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.
Premiums have been set by Congress at levels that have been insufficient to cover the benefits PBGC must pay. Administrations of both parties had proposed that PBGC's Board, like other public and private insurers, be allowed to set its own premiums based on the circumstances of the individual plans and their sponsors. Basing premiums on risk would encourage and reward companies who keep sound traditional pension plans. Under this approach the majority of companies that are financially sound would not have their premiums raised solely because of someone else's underfunding.
Recently, the Government Accountability Office suggested that Congress consider revising PBGC's premium structure to better reflect the agency's risk from individual plans and sponsors.
PBGC's financial statements are prepared in accordance with generally accepted accounting principles. The financial statements for fiscal year 2012 received an unqualified audit opinion for the 20th consecutive year. CliftonLarsonAllen LLP performed the audit under contract with the Corporation's Inspector General, who oversees the audit.