Pension Insurer's Deficit Nearly Doubles

Newly terminated pensions include Delphi, Lehman Brothers, and Circuit City

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The government agency that insures private sector pensions recently announced that its deficit has almost doubled to $22 billion in fiscal year 2009, up from an $11.2 billion deficit in September 2008. But financial problems at the Pension Benefit Guaranty Corporation have eased somewhat since March 31 when the agency reported a record $33.5 billion deficit.

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The pension insurer attributes the deficit increase primarily to new plan terminations and a drop in interest rates. PBGC became responsible for 144 newly terminated pension plans this fiscal year, including Delphi, Lehman Brothers, and Circuit City. The agency also identified 27 companies with underfunded pension plans that may be likely to terminate in a future year.

"Exposure to possible future terminations means that we could face much higher deficits in the future," says PBGC acting director Vincent Snowbarger. "We won't fail to meet our obligations to retirees, but ultimately we will need a long-term solution to stabilize the pension insurance program."

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Douglas Elliott, a Brookings Institution fellow, says the deficit is a symptom of serious structural problems with the PBGC’s finances. Insurance premiums companies pay to the PBGC are not high enough to cover the risks the agency takes on, Elliott writes in an analysis of the PBGC deficit. “They would have to go up considerably further still to fill in the existing financial hole.”

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Approximately 1.5 million workers receive benefits from the PBGC. Benefit payments to participants increased to $4.48 billion in 2009, up from $4.29 billion last year. The agency’s investment rate of return was 13.2 percent.