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CCH® PENSION AND BENEFITS — 11/22/05

PBGC reports $22.8 billion deficit

The Pension Benefit Guaranty Corporation's insurance program for single-employer pension plans showed a deficit of $22.8 billion as of September 30, 2005. In a news release issued on November 15, 2005, the PBGC reported that, if events subsequent to the fiscal year had occurred prior to year-end, the deficit in the single-employer program would have been $25.7 billion.

PBGC's financial health "not improving," says Belt

As of September 30, 2005, the single employer program reported assets of $56.5 billion and liabilities of $79.2 billion, according to the PBGC's annual Performance and Accountability Report submitted to Congress. In addition to on-balance-sheet liabilities, the report showed that PBGC's exposure to losses from pension plans sponsored by financially weak employers rose to $108 billion from $96 billion the year before. "Unfortunately, the financial health of the PBGC is not improving," said Executive Director Bradley D. Belt. "The money available to pay benefits is eventually going to run out unless Congress enacts comprehensive pension reform to get plans better funded and provide the insurance program with additional resources."

For the fiscal year, the PBGC incurred $4 billion in losses from completed and probable pension plan terminations while collecting only $1.5 billion in premiums. The insurance program's finances were helped by $3.9 billion in investment income and a $2.3 billion reduction in liabilities due to higher interest rates, leading to an overall net gain of $529 million. The single-employer program took in 120 terminated pension plans with a total of $10.5 billion in assets and $21.2 billion in liabilities, for an average funded ratio of 50 percent. All but $300 million of this liability was already reflected on the PBGC's balance sheet at the end of fiscal year 2004.

Exposure to future losses remained high

The report indicated that the PBGC's exposure to future losses remained high in 2005. Each year the PBGC calculates "reasonably possible" exposure, an estimate of the amount of unfunded vested benefits in pension plans sponsored by companies at greater risk of default. According to the 2005 financial statements, the PBGC's reasonably possible exposure is shown as reaching a record $108 billion, up from $96 billion in 2004 and $82 billion in 2003. The PBGC's estimate of the total shortfall in insured single-employer plans remained in excess of $450 billion.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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