PBGC deficit hits record $26 billion

WASHINGTON—The Pension Benefit Guaranty Corp.'s deficit hit a record $26.1 billion in fiscal 2011, the agency said Tuesday.

The deficit in the PBGC's insurance program for single-employer plans climbed to $23.3 billion in fiscal 2011, up from $21.6 billion the previous year. The deficit in the agency's insurance program that covers multiemployer pension plans nearly doubled to about $2.8 billion, up from $1.4 billion the previous year.

The PBGC attributed the rise in its deficit to lower interest rates used to value plan liabilities and anticipated increases in financial assistance to multiemployer plans.

As was the case in the prior fiscal year, the PBGC did not incur any multibillion-dollar losses in fiscal 2011. The single biggest loss the PBGC incurred was its February takeover of a pension plan sponsored by Forum Health Inc., a Youngstown, Ohio-based hospital and health care system that filed for bankruptcy in 2009 and has since sold off its assets. The plan had about $150 million in unfunded PBGC-guaranteed benefits.

The PBGC's biggest loss in fiscal 2010 was its takeover of a pension plan sponsored St. Vincent Catholic Medical Centers. Like Forum Health, the New York hospital and health care system filed for bankruptcy and sold off its assets.

The PBGC estimated it would be liable for $267 million of the $277 million funding shortfall of the St. Vincent plan.

By contrast, in fiscal 2009, the agency was hammered by several huge losses, including its second-biggest ever: its takeover of massively underfunded pension plans sponsored by failed auto parts manufacturer Delphi Corp., which the PBGC estimates will cost nearly $6.3 billion.

In addition, the agency could be hit with more big losses. It says its potential exposure to future losses from financially weak companies was about $227 billion in fiscal 2011, which ended Sept. 30, up from $170 billion the prior year.

During fiscal 2011, the PBGC took over 152 plans from financially ailing or failed employers, up from 147 the prior year. Since 1974, the PBGC has taken over more than 4,300 plans. In fiscal 2011, the agency paid about $5.5 billion to participants in failed single-employer plans, about the same as in 2010.

The agency funds benefit guarantees through investment income it earns on assets it acquires from the plans it takes over and by premiums it charges employers with defined benefit plans. Employers pay an annual flat-rate premium of $35 per participant. A premium of $9 per $1,000 of plan underfunding is imposed on employers with underfunded plans.

The Obama administration, though, has proposed raising the flat rate and variable rate premium. The flat-rate premium, which now generates more than $1 billion in revenue per year, gradually would be increased to raise $4 billion in additional revenue by 2021.

In addition, the PBGC Board of Directors—made up of the secretaries of the Labor, Treasury and Commerce departments—would have the discretion to increase the variable-rate premium to generate an additional $12 billion in revenue by 2021.

“Without action, the PBGC's deficit will increase and we may face, for the first time, the need for infusion of taxpayer funds to keep PBGC solvent,” the administration warned.

Hiking premiums, though, would cost jobs and be counterproductive in the long run, more than 80 major employers, consultants and trade associations said in a letter sent to federal lawmakers this month.