The Markets November 18, 2013

Council Seeks to Clarify PBGC Deficit

The American Benefits Council wants to clarify possible misconceptions surrounding deficit information from the Pension Benefit Guaranty Corporation (PBGC).
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The PBGC recently released its annual report, which mentions a $36 billion deficit for the 2013 fiscal year. It also mentions that the deficit for its multiemployer insurance program grew by $3 billion (see “PBGC Deficit Grows to $36B”).

“The agency’s reported deficit is a projection based largely on unrealistic assumptions and does not reflect the actual health of the PBGC or the defined benefit pension system. It certainly should not be used to justify raising premiums, yet again, paid by pension plan sponsors,” says James A. Klein, president of American Benefits Council.

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He says the council recommends that premiums not be raised or lowered based on year-to-year fluctuations caused largely by “short-term factors and inappropriate assumptions.”

The PBGC’s deficit, says Klein, is a snapshot measure of current assets minus liabilities and therefore does not accurately reflect the funded status of active ongoing plans. “All pension fund liabilities, including the PBGC’s, are overstated by the historically and artificially low interest rates of recent years. Keeping interest rates low is good policy to stimulate the economy, but it has the perverse effect of making very secure pension funds and the PBGC’s own situation appear underfunded,” he adds.

With proposals on the table, by both Congress and the White House, to raise PBGC premiums on plan sponsors, Klein cautions, “Doing so would further discourage plan sponsors from remaining in the system when the current low interest rate environment is already forcing employers to pour more money into plans that may never be needed. As more companies are forced to exit the system, the universe of plans from which premiums are collected further shrinks.”

The American Benefits Council is a national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system.
The Markets November 18, 2013

PBGC Deficit Grows to $36B

The annual report of the Pension Benefit Guaranty Corporation (PBGC) puts the agency’s deficit at about $36 billion for the 2013 fiscal year.
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The report attributes most of this deficit to the declining financial condition of multiemployer plans (see “PBGC Warns of Trouble for Multiemployer Program”). At the same time, the report notes that the PBGC continues to get high scores for customer satisfaction.

“Pension plans continue to provide retirement security for tens of millions,” says Josh Gotbaum, director of the Washington, D.C.-based PBGC. “We should not let the problems of a few plans overshadow the reliable retirement security provided by the majority, but neither can we ignore them.”

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Gotbaum adds, “Our agency stands ready to help, but the PBGC’s growing deficit is a reminder that our current resources are inadequate. Without adequate funding we can’t pay benefits or preserve pensions.”

Multiemployer retirement plans provide lifetime income to more than 10 million people in 1,400 plans, working for hundreds of thousands of businesses. Because more plans will fail within the next decade, according to PBGC research, the deficit of the agency’s multiemployer insurance program rose to more than $8.2 billion, compared with $5.2 billion last year (see “PBGC Reports Record Deficit for 2012”).

The deficit in the program for single-employer pension plans narrowed to about $27.4 billion, down from $29.1 billion in 2012. The program insures the pensions of nearly 32 million workers and retirees in 23,000 ongoing plans sponsored by private-sector employers. The single-employer program’s potential exposure to future pension losses from financially weak companies was estimated at about $292 billion compared to about $295 billion last fiscal year.

Gotbaum points out that retirees receiving benefits continue to rate the PBGC as one of the best in government for its commitment to customer service. The agency ranks in the top 3% in a survey measuring 154 categories of customer responsiveness. Retirees gave the PBGC a score of 90 on the American Customer Satisfaction Index, 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.

The PBGC’s financial statements are prepared in accordance with generally accepted accounting principles in the U.S. and the financial statements for fiscal year 2013 received an unmodified audit opinion from CliftonLarsonAllen LLP. The PBGC annual report can be found here.

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