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September 05, 2005
Pension Insurer Says Funds Could Run Out Unless Congress Acts

The Pension Benefit Guaranty Corporation is reporting that its insurance program for pension plans showed a deficit of $22.8 billion as of September 30, 2005.

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As of September 30, the single employer program reported assets of $56.5 billion and liabilities of $79.2 billion, according to the agency's annual report submitted to Congress.

Accounting standards also required the PBGC, a government agency that insures pension plans, to disclose the change in net position that would have occurred as a result of subsequent events. In addition to on-balance-sheet liabilities, the report showed that PBGC's exposure to losses from pension plans sponsored by financially weak employers rose to $108 billion from $96 billion the year before.

"Unfortunately, the financial health of the PBGC is not improving," says Bradley D. Belt, PBGC's executive director. "The money available to pay benefits is eventually going to run out unless Congress enacts comprehensive pension reform to get plans better funded and provide the insurance program with additional resources."

For the fiscal year, the PBGC incurred $4.0 billion in losses from completed and probable pension plan terminations while collecting only $1.5 billion in premiums. The insurance program's finances were helped by $3.9 billion in investment income and a $2.3 billion reduction in liabilities due to higher interest rates, leading to an overall net gain of $529 million.

The single-employer program took in 120 terminated pension plans with a total of $10.5 billion in assets and $21.2 billion in liabilities, for an average funded ratio of 50 percent. All but $300 million of this liability was already reflected on the PBGC's balance sheet at the end of fiscal year 2004.

The pension insurance program's exposure to future losses remained high in 2005. Each year the PBGC calculates "reasonably possible" exposure, an estimate of the amount of unfunded vested benefits in pension plans sponsored by companies at greater risk of default. The 2005 financial statements show PBGC's reasonably possible exposure reaching a record $108 billion, up from $96 billion in 2004 and $82 billion in 2003. The PBGC's estimate of the total shortfall in insured single-employer plans remained in excess of $450 billion.

The PBGC assumed responsibility for the pension benefits of an additional 235,000 workers and retirees in 2005, bringing the total number owed a benefit to 1.3 million. The amount of benefits paid increased from $3.0 billion in 2004 to $3.7 billion in 2005 and is projected to rise to $4.4 billion in 2006.

PBGC is a federal corporation created under the Employee Retirement Income Security Act of 1974. It currently guarantees payment of basic pension benefits for more than 44 million American workers and retirees participating in more than 30,300 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and by PBGC's investment returns.

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