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5500 Preparer's Manual for 2012 Plan Years

5500 Preparer's Manual for 2012 Plan Years
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PBGC’s insurance programs remains highrisk, GAO says

The PBGC’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).

Although the combined net financial condition of PBGC’s single-and multiemployer insurance programs has recently improved, the programs and the agency are designated high risk by the GAO because of the “ongoing threat of losses from the termination of underfunded plans.” As of fiscal year-end 2008, the PBGC’s accumulated deficit totaled $11.2 billion, down from $14.1 billion in 2007. However, the GAO report noted, the recent financial crisis has likely eroded the funding of many large plans and lowered the credit rating of many sponsors, developments that the most recent estimates may not reflect.

In 2008, the PBGC also decided to change its investment policy to increase its allocation of assets invested in equities and other, new asset classes, while decreasing its fixed-income investment allocation. The PBGC believes this change will help it meet its long-term financial obligations, but the GAO noted that it also increases the risk of large investment losses. In addition, the PBGC’s assets may currently be much lower than reported, given the significant stock market decline since the end of the 2008 fiscal year.

According to the GAO, the long-term decline of the defined benefit plan system continues to erode the PBGC’s premium base, with the PBGC insuring about 65% fewer plans than it did 15 years ago. In addition, the PBGC’s insurance programs remain exposed to the threat of terminations of large underfunded plans sponsored by financially weak firms, such as the automakers.

Congress may need to “carefully monitor” the financial health of the PBGC’s programs, the GAO report concluded, and may need to take additional action to safeguard the private pension system’s role in national retirement security.

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