Federal Pension Insurer's Deficit Shrank to $18.1B in FY2006
WASHINGTON – The federal agency that insures private pension plans for millions of Americans logged a deficit of $18.1 billion this year, a big improvement from last year as a new law helped to put the agency on better financial footing.
The narrower deficit for the 2006 fiscal year reported by the Pension Benefit Guaranty Corp. Wednesday was down from a shortfall of $22.8 billion recorded in 2005 and a record $23.3 billion posted in 2004.
"The PBGC's financial condition appears to have stabilized for the time being," said Vince Snowbarger, interim director of the agency, which insures pensions for 44 million workers and retirees.
The agency disclosed in its annual financial report that as of Sept. 30 it had assets of $60 billion to cover liabilities of $78.1 billion.
PBGC mainly attributed the shrinking deficit to a provision in the new pension law that carves out special treatment for the airline industry, giving airlines that are in bankruptcy court and have frozen their pension plans extra time for their pension plans to become financially whole.
The agency said this led to a sharp reduction in the amount of probable liabilities reflected on the agency's balance sheet.
Still, the report comes as Americans are feeling anxious about their retirement security. In recent years, an explosion of ailing companies have jettisoned their pension liabilities to the PBGC. The problem has been especially pronounced in industries such as steel and the airlines, which are heavily unionized.
Organized labor wants the new Democrat-controlled Congress, which will convene in January, to provide for more pension protections, including for defined benefit plans, which are increasingly being replaced by 401(k) plans.
The PBGC was created in 1974 as a government insurance program for traditional, defined benefit pension plans. Those plans give retirees a fixed monthly amount based on salary and years of employment. Companies that sponsor these traditional pension plans pay insurance premiums to the agency. If a company can't support its pension obligations, the agency takes over the plan and pays promised benefits up to certain limits.
The maximum annual benefit for plans taken over in 2006 is $47,659 for workers who wait until 65 to retire. Workers who retire before 65 get smaller benefits.
Traditional pension plans are still underfunded but not by as much as in the past, the agency said. These pensions now are underfunded by $350 billion, compared with $450 billion last year.
The agency said it was responsible for the pension benefits of 1.3 million workers and retirees this year, reflecting no net change from last year. The amount of benefits paid increased to $4.1 billion this year from $3.7 billion last year. The amount is projected to rise to $4.8 billion next year.
President Bush in August signed a bill to shore up funding for traditional pensions. Supporters hope the changes will help prevent a multibillion-dollar taxpayer bailout of the PBGC.
In addition to insurance premiums paid by companies, PBGC's operations are financed by money it earns from investments and funds from pension plans it takes over. The agency is not financed through tax revenues.