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CCH® PENSION — 12/02/11

PBGC releases long-term projections, forecasts higher deficits

The Pension Benefit Guaranty Corporation (PBGC) has released its long-term exposure report, which shows financial deterioration in some pension plans and forecasts increased deficits for the agency. The report projects increased deficits in both the PBGC's single-employer program and its multiemployer program.

"Most private pensions are sound," said PBGC Director Joshua Gotbaum, "but some are real sources of concern. We want to make sure they can restore themselves, and that PBGC has the resources to help."

The projections were made as part of the PBGC's FY2010 annual report, based on economic and financial conditions at that time.

Increased deficit in single-employer program

The PBGC performed 5,000 simulations on the future of the single-employer program, which has $78 billion in assets to cover $99 billion in pension benefits. The projection, as of September 30, 2010, in the PBGC's single-employer program was for a deficit of $24 billion in 2020, an increase from the program's $21.6 billion deficit on that date. None of the computer simulations projected the program to run out of money in the next 10 years.

Because the PBGC pays benefits over a lifetime for people receiving pensions, a deficit in the program means less money will be available in future decades. However, that point still appears to be many years in the future for the agency's single-employer program, the PBGC said.

The PBGC emphasizes that its projections, though using the best models available, retain all the limitations of long-term financial projections. The agency's modeling system can't account for all factors that affect the financial condition of traditional pension plans, including employer decisions about whether to keep current pension plans or change to other forms. As the modeling system stretches further into the future, those factors become increasingly important.

Multiemployer plan concerns

For the PBGC's multiemployer program, the deficit was projected in the same period to reach $9.4 billion up from $1.5 billion. Projections in the report show a nearly 30% chance that the PBGC's multiemployer program will run out of money entirely within 20 years. As of FY 2010, the multiemployer program had $1.6 billion in assets to cover $3.1 billion in existing liabilities. Financial distress in the multiemployer program stems from funding shortfalls of a few large multiemployer plans, the PBGC said.

Unlike single-employer plans, the PBGC does not acquire the assets of multiemployer plans, but instead must wait until they are completely insolvent before beginning to fund benefits. Computer simulations from the agency's Pension Insurance Modeling System project that the multiemployer program has a 6% chance of becoming insolvent by 2020 and a nearly 30% chance of insolvency by 2030.

Source: PBGC News Release No. 12-04, November 10, 2011.

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.

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