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Pension Tension PBGC Stays on Government Watch List

January 27, 2009
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The Pension Benefit Guaranty Corp will remain on the GAO’s “high-risk” watch list for 2009, amid concerns that the nation’s economic crisis could lead to more pension plan terminations that would increase the agency’s budget deficit, according to a Government Accountability Office report.

The PGBC’s deficit declined to $11.2 billion as of September 30, from $14.1 billion at the end of the previous fiscal year, the GAO said in the report, “High-Risk Series, an Update.” But it also said the financial crisis had probably eroded the funding of many large plans and lowered the credit rating of many plan sponsors, “developments that the most recent (PBGC) estimates may not reflect.”

The PBGC has been on the GAO’s watch list since July 2003.
Last year, the PBGC increased its equity and alternative-investment exposure, moving away from fixed income.

“PBGC believes this change will help it meet its long-term financial obligations, but it also increases the risk of large investment losses,” the GAO said in its report. “Further, the long-term decline of the DB system continues to erode PBGC’s premium base, with PBGC insuring about 65% fewer plans than it did 15 years ago,” GAO said.

The report noted that recent legislation had relieved the pension funding obligations of some plan sponsors.

“In addition, the financial fate of the Detroit automakers, which sponsor very large DB plans, is also uncertain,” the GAO said. “These developments likely increase PBGC’s risk exposure, perhaps significantly” should the companies fail leaving greatly underfunded plans.

Giving the PBGC the legal authority to charge risk-based premiums could improve the agency’s financial standing, Jeffrey Speicher, a PBGC spokesman, said in a statement. The PBGC has authority to charge only a flat-rate premium based on the number of participants in a plan and to assess additional premiums on underfunded plans.

“Basing premiums on actual risk of failure is an idea that has long been on the table, and one that may continue to draw interest when future reforms are considered,” Speicher said in the statement.

Filed by Doug Halonen of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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