The American Benefits Council today suggested the PBGC's deficit may be only $14.3 billion, or even as low as $4.6 billion, instead of the $23.3 billion the agency reported as of Sept. 30, 2004. A report by Mary Schmitt and John O'Hare of Optimal Benefit Strategies, a Washington-based employer association, also took aim at the PBGC for investing its assets in overly conservative investments and urged it to invest in equities instead.
"We think it's bad policy that it's required to invest its premium income in Treasury securities and that should be changed ... and given that they have announced investing even more in fixed income, that's in the wrong direction," James Klein, president of the American Benefits Council, said in a conference call with reporters.
The report also faulted the PBGC for using inordinately low interest rates to calculate its funding status, which has triggered variable rate premiums for plan sponsors. Had the PBGC been able to boost its interest rate assumption by using investment-grade corporate bonds rather than government securities, its deficit would be only $14.3 billion as of Sept. 30. And using an even higher interest rate assumption based on equity investments could slash the PBGC's deficit down to less than $5 billion. The agency currently assumes an interest rate of 4.8%, which the ABC's report assumes rates between 6.2% and 7.5%.
"The ABC report merely reiterates arguments long advanced by the trade group," said Jeffrey Speicher, a spokesman for the PBGC.