Pension Benefit Guaranty Corporation Single-Employer Insurance Program: Long-Term Vulnerabilities Warrant 'High Risk' Designation

Published by the Government Accountability Office on 2003-07-23.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                              July 23, 2003

                                              PENSION BENEFIT GUARANTY
                                              CORPORATION SINGLE-EMPLOYER
                                              INSURANCE PROGRAM
Note: This highlights page is a
standalone document, GAO-03-1050SP.
                                              Long-Term Vulnerabilities Warrant “High
Background                                    Risk” Designation
The potential losses that PBGC,
through its single-employer
insurance program, might face                 Why Area is “High Risk”
from the termination of
underfunded plans have been a
                                              GAO has designated PBGC’s single-employer pension insurance program as
longstanding concern of the
Congress and GAO. In 1990, as                 “high risk,” adding it to the list of agencies or major programs that need
part of our effort to call attention          urgent attention and transformation to ensure that our national government
to high-risk areas in the federal             functions in the most economical, efficient and effective manner possible.
government, we noted that                     The single-employer insurance program insures the pension benefits of over
weaknesses in the single-employer             34 million participants in more than 30,000 private defined benefit plans.
insurance program’s financial                 Agencies or programs receiving a “high risk” designation receive greater
condition threatened PBGC’s long-             attention from GAO and are assessed in regular biennial reports.
term viability. We stated that
minimum funding rules still did not           After fluctuating over the last decade, the single employer insurance
ensure that plan sponsors would
                                              program now has a large and growing accumulated deficit. The program has
contribute enough for terminating
plans to have sufficient assets to            moved from a $9.7 billion accumulated surplus in 2000 to a $3.6 billion
cover all promised benefits. In               accumulated deficit in fiscal year 2002. As of April 2003, the program’s
1992, we also reported that PBGC              unaudited deficit was an estimated $5.4 billion, the largest in PBGC history.
had weaknesses in its internal                Furthermore, the degree of underfunding in the private pension system has
controls and financial systems that           increased dramatically and additional severe losses may be on the horizon.
placed the entire agency, and not             PBGC estimates that financially weak firms sponsor plans with over $35
just the single employer program,             billion in unfunded benefits, which ultimately might become program losses.
at risk. Three years later, we                The termination of large underfunded pension plans of bankrupt firms in
reported that legislation enacted in          troubled industries like steel or airlines was the major cause of the deficit.
1994 had strengthened PBGC’s                  Declines in the stock market and interest rates and certain weaknesses in
program weaknesses and that we
                                              the current funding rules contributed to the severity of the plans'
believed improvements had been
significant enough for us to remove           underfunded condition. However, these factors mask broader trends that
the agency’s high-risk designation.           pose serious program risks. For example, the program’s insured participant
However, given the potential for              base continues to shift away from active workers, falling from 78 percent of
significant changes in the                    all participants in 1980 to 53 percent in 2000. In addition, the program’s risk
program’s position, we continued              pool has become concentrated in industries affected by global competition
to monitor the situation.                     and the movement from an industrial to a knowledge based economy. In
                                              2001, almost half of all program insured participants were in plans
Early this year, PBGC’s single-               sponsored by firms in manufacturing industries.
employer pension insurance
program reported a $3.6 billion
                                              Program Assets, Liabilities, and Net Position, Fiscal Years 1976-2002
accumulated deficit for fiscal year
2002, brought on by the termination                                              $30
                                                   (2002 dollars in billions)

of a number of large underfunded                                                 $25
pension plans. Given significant                                                 $20
risk of termination of other large                                               $15
underfunded plans, GAO is                                                        $10
assigning PBGC’s single-employer                                                  $5
insurance program to its “high risk”                                              $0
list, highlighting the need for                                                  -$5
congressional and agency action.                                                -$10
                                                                                       1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
For additional information, contact Barbara
Bovbjerg at (202) 512-5491,Charles Jeszeck,                                                         Assets      Liabilities   Net financial position
(202) 512-7036, or George Scott, (202) 512-
                                              Source: PBGC annual reports