Out of the Shadows? PBGC’s Deficit Shrinks by $5 Billion

Economic growth and better investments helped the pension insurer achieve a healthier budget.


The budget deficit of the Pension Benefit Guaranty Corp.,the insurer of America’s defined-benefit pension plans, has shrunk by $5 billion in fiscal 2007, the PBGC reported.

The debt-laden agency, whose shaky finances had raised fears of a future taxpayer bailout, saw its deficit reduced to $13.1 billion from $18.1 billion the year before. The improvement was spurred by healthy economic growth, strong investment returns and higher “valuation interest factors,” according to Charles Millard, the PBGC’s interim director. (PBGC’s valuation interest factors, used in conjunction with a specified mortality table, are intended to “match” the resulting present value of future benefits from the plans it has trusteed.)

The PBGC has been plagued with debt over the years as struggling plan sponsors have handed it their liabilities. But pension reforms and better management have helped the agency cut its debt. In 2004 it reached a record deficit of $23.3 billion, declining to $22.8 billion in 2005.

The valuation-interest factors that Millard referred to spurred a decrease in the PBGC’s liabilities this year. The corporation also benefited from a year when no large plans failed. In 2007 it gained $4.7 billion in investment income and an actuarial credit of $2.8 billion. The PBGC gained returns of 7.2 percent on invested funds.

Further, the PBGC was successful in keeping “probable losses” off its balance sheet in 2007. Exposure to pension losses from companies struggling financially decreased to $66 billion from $73 billion in 2006.

The PBGC, which insures the benefits of 44 million Americans in 30,460 private-sector defined-benefit pension plans, was buoyed by income from its single-employer program. That program earned premium income of $1.48 billion in 2007 compared to $1.44 in 2006. Single- employer benefit payments rose to $4.3 billion in 2007 from $4.1 billion the previous year, according to the budget report.

Insurance for multiple-employer pension plans experienced a widening deficit, however. The net deficit for those plans grew from $739 million in 2006 to $955 million in 2007. The amount of financial assistance that PBGC provides to insolvent multi-employer plans totaled $71 million for 36 plans in 2007.

The PBGC said it would continue to manage its assets “prudently” and will look for a wider variety of financial tools to do so.

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