PBGC reports record $34 billion deficit for fiscal year 2012

The Pension Benefit Guaranty Corporation (PBGC) has released its annual report for fiscal year 2012, which shows that the Agency’s deficit increased to $34 billion, the largest deficit in the 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.

“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 the 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,” Gotbaum said.

The 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. In 2012, the 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.

Deficit in single-employer program increases to $29.1 billion

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 the 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.

Deficit in multiemployer program increases to $5.2 billion

The separate insurance program for multiemployer pension plans posted a deficit of more than $5.2 billion, compared with $2.8 billion last year.

The 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.

Source: PBGC News Release No. 12-33, November 16, 2012.

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

Visit our News Library to read more news stories.