“The reason that our deficit grew is not because of investment losses, rather because of more plan terminations coming through the agency since the last fiscal year,” said Constance Markakis, senior attorney advisor in the legislative and regulatory department at PBGC.
Markakis spoke on Wednesday at the “Washington Legislative Update” conference sponsored by the International Foundation of Employee Benefit Plans. “We had a $3 billion investment loss on our $63 billion assets portfolio. Also, 70% of our assets are invested in fixed-income, as of this day,” she said.
Still, the recession and the stock market decline means more defined benefit plans are substantially underfunded, thus seeking distressed terminations. “The $33.5 billion includes both actual terminations and probable terminations, which are terminations that we predict will occur within the next year,” explained Markakis.
PBGC insures the pensions of about 33.8 million workers and retirees in about 28,000 private-sector DB plans under its single-employer insurance program and 10.1 million participants under its multiemployer program in about 1,500 plans, according to the Employee Benefit Research Institute.
While Markakis was addressing the conference, her boss, Vincent Snowbarger, and others were testifying before the Senate Special Committee on Aging about PBGC’s huge deficit.
“As long as an employer or group of employers maintains the plan until it pays its last benefit, PBGC is fine. The risk is underfunded terminations due to business failures or reorganizations,” said Dallas Salisbury, president of EBRI.
Salisbury explained to the committee members that the new deficit suggests “a major challenge should the current economic crisis continue for some time, including their estimate of potential auto industry net exposure of $42 billion were all plans to end up with the PBGC.”
He added: “The current system environment is mixed to bad. Plan terminations have accelerated. Plan freezes have accelerated. And, the current economic crisis holds the potential for more plans to shift liabilities to the PBGC.”
American Benefits Council President James A. Klein told the
lawmakers: “Without dismissing the importance of the new deficit figure, it
should be kept in proper perspective. The $11 billion surplus the PBGC enjoyed
just a few years ago was no more an indication of a healthy pension system than
the current deficit is an indication of a crisis.”
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