U.S. Pension Insurance Agency Lost $3 Billion in Stock Investments

Does the organization that insures private-sector worker pensions need a bailout?

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The U.S. Pension Benefit Guaranty Corp. (PBGC), a government agency that insures private-sector pension plans and pays out benefits if the a plan fails, lost at least $3 billion in investments during its fiscal year, which ended in August, U.S. Rep. George Miller announced at a hearing today in San Francisco. Miller, a California Democrat, heads the congressional committee that oversees PBGC.

According to a document containing preliminary, unaudited figures, the losses were caused by the agency's stock holdings. Miller says PBGC invested a significant portion of its funds in mortgage-backed securities.

PBGC spokesman Jeffrey Speicher downplayed the decline in a response to the hearing yesterday evening. "PBGC's investments posted a $1.16 billion loss through August, but investment performance is only part of the financial picture," Speicher says. "When the fiscal year 2008 audited financial statement is released in mid-November, PBGC's deficit is expected to be significantly lower than the 2007 figure of $14 billion, due to other factors such as increased interest rates used to calculate liabilities. We expect the new deficit figure will be about $10 to $12 billion."

For example, PBGC announced today it has assumed responsibility for the underfunded pensions of 1,370 workers and retirees at Pope & Talbot Inc., a pulp and lumber company based in Portland, Ore. The Pope & Talbot pension plan is only 92 percent funded, with $57.5 million in assets to cover $62.3 million in benefit liabilities, according to PBGC estimates. PBGC will take over the assets and use insurance funds to pay guaranteed benefits earned under the plan. The agency expects to be responsible for $3.7 million of the $4.8 million shortfall.

The maximum guaranteed pension PBGC will pay out is $51,750 per year in 2008 for workers at age 65, a level set by federal pension law. The maximum guaranteed amount is lower for those who retire earlier or elect survivor benefits.

PBGC currently pays monthly retirement benefits to more than 631,000 retirees in 3,793 pension plans that have ended.

Updated on 10/23/08: An earlier version of this post was published before PBGC responded to yesterday's hearing.