The PBGC today said its deficit was a record-setting $11.2 billion for the year ended Sept. 30, compared with a $3.6 billion shortfall a year earlier. The deficit was the result of $5.4 billion in losses attributed to terminated corporate pension funds and a $4.4 billion loss caused by a 130-basis-point decline in interest rates during the year. The losses were offset by insurance premiums of $948 million and investment income of $3.3 billion. At the same time, the agency's multiemployer pension program reported a deficit of $261 million, its first in more than 20 years.
The agency estimates it could be on the hook for a total of $85.5 billion if financially weak companies with unfunded pension liabilities fail.
Separately, the agency is expected to announce soon that it will be allowed to invest some of its assets in fixed income instead of equities because it better matches the duration of the liabilities. "ERISA says that the (agency's) assets can be invested in equities but don't have to be," said Steven A. Kandarian, executive director. He also said the agency has seriously considered whether the premiums should be risk-based, with below-investment-grade companies paying a higher premium. The provision could be part of the Bush administration's comprehensive pension funding reform proposals to be presented to Congress possibly next month.