The doubling of the Pension Benefit Guaranty Corp.'s deficit underscores the need for a hard-nosed solution to the chronic financial woes of this government-chartered company if the public is to be spared another massive bailout.
The PBGC, which insures basic pension benefits for about 44 million American workers and retirees in more than 29,000 private-sector defined benefit pension plans, recently announced that the deficit for the fiscal year ended Sept. 30, 2009, was $22 billion, compared with $11.2 billion for fiscal 2008.
That, however, could be just the tip of the iceberg. The PBGC said in its annual management report that 27 large pension plans with total underfunding of $1.64 billion were probable losses that would probably end up on its balance sheet and, more ominously, that its potential exposure to future pension losses from financially weak companies increased to about $168 billion from $47 billion in fiscal 2008.
Vincent K. Snowbarger, PBGC acting director, has conceded how grim the situation had become, while emphasizing the need for a long-term solution that could bring stability to the embattled pension insurance program. For 29 of its 35 years, the agency has operated in the red.
The PBGC is funded by premiums it charges employers whose defined pension benefit plans it insures, and by its investment returns. If a company fails and is no longer able to meet its pension obligations, the agency steps in as trustee and assumes monthly payments to retirees.
Battered by a weakened economy, the PBGC found itself responsible for 144 new private-sector pension plans for the fiscal year ended Sept. 30, compared with 67 plans for the prior year. In addition to these new obligations, the agency found its financial situation weakened by record-low interest rates that actuarially magnify the present value of future benefit obligations.