The Pension Benefit Guaranty
Corporation (PBGC) is a federal government agency created by the Employee Retirement
Income Security Act of 1974 (ERISA) to protect the pensions of participants
covered by most private sector, defined benefit pension plans. The PBGC receives
no appropriated funds.
The agency’s costs are offset
by the assets of the plans that the PBGC takes over and premiums paid by the
sponsors of covered pension plans. The premiums are established by Congress.
The PBGC’s single-employer program posted an all-time high deficit of $23 billion
in 2004; as of September 30, 2006, the deficit was $18 billion.
The PBGC discloses an additional,
off-balance sheet liability for reasonably possible terminations; as of September
30, 2006, it was $73 billion. Although the PBGC’s net position (measured as
assets minus liabilities) improved $5.2 billion since 2004, it fell $31.0 billion
from 2001 to 2004. Many factors have contributed to the PBGC’s worsening financial
condition. Primary among them was the termination of several large underfunded
pension plans between 2002 and 2005 in the steel and airline industries. Plan
terminations by airlines continue to threaten the PBGC’s finances. Poor stock
market returns (in 2001 and 2002) and falling interest rates also contributed
to the PBGC’s recent problems.
As the PBGC’s condition
worsened, Congress and the Bush Administration considered reforms to address
the salient issues. On August 17, 2006, the President signed the Pension Protection
Act as P.L. 109-280. It has been called the most comprehensive reform of the
nation’s pension laws since the enactment of ERISA.
The law establishes new
rules that strengthen funding requirements for most plans; however, it provides
funding relief for plans sponsored by commercial airlines. It also includes
reforms that affect cash balance plans, defined contribution plans, and other
forms of deferred compensation. Although the PBGC currently receives no appropriations,
many expect that because it insures the pensions of 44 million Americans, its
failure could require a taxpayer funded bailout.
The Government Accountability
Office (GAO) added the PBGC’s single-employer insurance program to its list
of high-risk areas in July of 2003. As of January 2007, it remains on GAO’s
list because of its high deficit and because the ultimate impact of recent reforms
on the PBGC’s finances is unclear. This report focuses on the financial condition
of the PBGC and the effects of the Pension Protection Act; it will be updated
upon major developments affecting the PBGC’s financial condition.
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