Record Deficit for the Pension Benefit Guaranty Corp.
The Pension Benefit Guaranty Corp., which covers retiree benefits when companies go bankrupt and their pensions fail, says its deficit for fiscal 2011 was the largest in its 37-year history.
The deficit increased to $26 billion in fiscal 2011 which ended September 30. The PBGC has posted losses in 30 out of the 37 years of its existence, according to its filings.
The PBGC says in a statement that its $26 billion shortfall is a $3 billion increase from the $23 billion reported last year. The PBGC says it has just $81 billion in assets to cover $107 billion in pension obligations.
The PBGC is a federal unit that backs the pension benefits of private pension plans covering an estimated 44 million of America’s workers and retirees in more than 27,000 private-sector pension plans. To get federal coverage, companies pay insurance premiums to the PBGC.
The economic downturn and corporate bankruptcies have helped create the record shortfall. Pension plans are also most widespread in the manufacturing sector which has been hit hard; notably hurting are the auto, airline and steel industries.
The PBGC also says it made less profit in the stock market, which helps to fund pension plans. Returns were $3.6 billion, about half what it earned the prior year.
The PBGC, which debuted in 1974, says in the statement that: “As a result of plan failures, the agency is already responsible for the retirement benefits of about 1.5 million and its obligations (‘liabilities’),” which it says “the bulk of which are benefits to be paid over many years,” with the remainder “covered by future premiums paid by pension plans for their insurance and from investment returns.”
The Administration has already proposed that PBGC premiums be raised, and that the PBGC’s Board of Directors be authorized to set premiums based on the circumstances of individual plans and their sponsors. Corporate fees for PBGC coverage have not been hiked in about five years.
"The majority of pension plans are OK but, as our deficit growth shows, we think that some will lack the funds to pay benefits," said PBGC Director Joshua Gotbaum in a statement. "When that happens, PBGC insurance will be there to help."
PBGC adds it has had some success. It says it “works with companies, in and out of bankruptcy, to preserve their plans,” and that “when bankrupt companies reorganize, PBGC’s priority is to keep pensions going and protect retirees.”
Specifically, in fiscal 2011, 19 companies had their operations emerge from bankruptcy with ongoing plans, keeping about $2 billion in pension promises in the hands of the companies that made them, and preserving benefits for more than 74,000 workers and retirees.
Among the companies were Visteon, Chemtura Corp., and FairPoint Communications Inc., the PGBC says.