PBGC deficit hits record at $34 billion

The PBGC in its annual report on Friday announced it had a record $34 billion deficit as of Sept. 30, the end of its latest fiscal year.

The deficit, the largest in the 38-year history, of the Pension Benefit Guaranty Corp., was caused by a combination of factors, including low interest rates used to measure benefit payments and expected increases in financial assistance needed for multiemployer plans, according to a news release.

The PBGC’s pension obligations were $119 billion; it has $85 billion in assets.

The deficit for the single-employer insurance program grew to $29.1 billion, from $23.3 billion in fiscal year 2011, as 155 underfunded pension plans were terminated. The PBGC’s potential exposure for other plan terminations increased to $295 billion from $227 billion.

The multiemployer insurance program deficit nearly doubled in fiscal 2012, to $5.2 billion from $2.8 billion. The PBGC provided $95 million in financial assistance to 49 insolvent plans.

Joshua Gotbaum, PBGC director, used the annual report to advance his argument that the agency should set its own premiums.

The PBGC “continues its work to preserve pensions, and to provide some of the best service anywhere, but continuing financial deficits will ultimately threaten its ability to pay benefits,” Mr. Gotbaum said in the news release.

Mr. Gotbaum said the PBGC has enough assets on hand to pay pension benefits for years, but he would prefer to start reducing the deficit soon.

Premiums are set by Congress at levels “insufficient to cover the benefits PBGC must pay,” according to the release.

The American Benefits Council, a Washington-based employer group, called the expected deficit news “a non-event,” arguing in a news release that low interest rates over the past year have created a temporary deficit that makes liabilities “appear greater than they really are.”

In fiscal 2012, PBGC paid nearly $5.5 billion in benefits to 887,000 retirees whose plans had failed, and assumed responsibility for 47,000 future retirees in failed plans.

As of Sept. 30, the agency’s investment portfolio returned 12.6%, with $4.8 billion in gains from fixed income and $4 billion from equities. Roughly two-thirds of the PBGC’s investment managers outperformed their respective portfolio benchmarks, with the bond portfolio returning 9.8% and the stock portfolio, 22.6%.