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- 5932. Source: PBGC annual reports
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)