PBGC’s insurance programs remain on GAO’s “high risk” list, but improvements noted

The Pension Benefit Guaranty Corporation’s single-employer and multiemployer benefit insurance programs continue to make the list of “high-risk” federal programs, according to a report released by the Government Accountability Office (GAO). The GAO put the PBGC’s single-employer program on its high-risk list in July 2003 and added the multiemployer program in January 2009. However, the report noted that Congress has taken action to strengthen the PBGC’s overall management and governance structure, addressing many of the problems that the GAO has raised over the years.

Deficit worsens

At the end of the 2012 fiscal year, the PBGC’s net accumulated financial deficit was $34 billion—an increase of over $23 billion from the end of fiscal year 2008, and significantly worse than in 2000, when the Agency reported a $10 billion surplus.

The PBGC estimates that its financial risk for potential termination of underfunded plans sponsored by financially weak firms is about $295 billion, an amount that has continued to worsen since 2008. The GAO noted that the Pension Protection Act of 2006 (P.L. 109-280; PPA) strengthened some aspects of the funding rules, but in response to the recession, subsequent legislation has softened these provisions, initially by phasing in the PPA’s changes and, more recently, through changes in how minimum contributions are calculated.

Improvements noted

The GAO report noted that both Congress and the PBGC have taken “significant steps” to address many of its concerns with the PBGC’s overall management and governance structure. In July 2012, the Moving Ahead for Progress in the 21st Century Act ( P.L. 112-141, MAP-21) was enacted. MAP-21 included measures to stabilize plan sponsors’ pension contribution requirements, adjust premium rates, and strengthen the PBGC’s governance. The PBGC has also taken steps to address several areas of weakness, the report noted. For example, in response to concerns about the Agency’s management of its assets, the PBGC issued a new investment policy statement in May 2011 and has subsequently aligned its portfolio with these new objectives.

GAO recommendations

To improve the financial stability of the PBGC’s insurance programs, the GAO recommends that Congress consider taking the following actions:

• adopting further changes to the PBGC’s governance structure—in particular, expanding the composition of its Board of Directors;

• authorizing a redesign of the PBGC’s premium structure to better align rates with sponsor risk;

• strengthening funding requirements for plan sponsors as the economy improves; and

• working with the PBGC to develop a strategy for funding PBGC claims over the long term as the defined benefit sector continues to decline.

Source: GAO-13-283, “High-Risk Series: An Update,” February 2013.

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

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