The federal agency that insures private sector pensions announced this week that its deficit increased to $23 billion for fiscal year 2010, up from $22 billion last year. The Pension Benefit Guaranty Corporation assumed responsibility for 172 new failed pension plans covering nearly 109,000 workers and retirees this year.
The 36-year-old PBGC paid $5.6 billion this year to 801,000 retirees whose pension plans were terminated. Another 700,000 Americans will receive benefits from the PBGC when they reach retirement age. The largest plan terminations in 2010 were formerly sponsored by Crucible Materials, Fraser Papers, Hartmarx, and Saint Vincent Catholic Medical Centers. The insurer also negotiated to prevent the termination of the pensions of another 250,000 people, including the workers at Lear Corp., LyondellBasell Industries, and the Smurfit-Stone Container Corp.
The underfunded agency has $79.5 billion in assets to cover pension obligations that total $102.5 billion. Although the PBGC took in $2.3 billion in premiums from private sector employers and earned $7.8 billion in investment income (a 12 percent return), the agency’s pension commitments increased by $11.5 billion this year. “In part, this financial position is the result of inadequate plan funding and misfortunes that have befallen plan sponsors,” writes PBGC Director Josh Gotbaum in an introduction to the annual report. “In part, it is a result of the fact that the premiums PBGC charges are insufficient to pay for all the benefits that PBGC insures, and other factors.” Companies paid premiums of $35 per participant for single-employer plans and $9 for each worker in multiemployer plans in 2010. Interest and penalties are levied on any unpaid portion of the premiums.
The agency says it has sufficient funds to pay benefits for the foreseeable future because its obligations are paid out over decades. The maximum insurance benefit for pension participants whose plans terminate in 2011 will be $54,000 per year for pensioners who retire at age 65. The insured amount is lower for workers who claim their payout before age 65 or elect to have survivor’s benefits paid to a spouse and increases for those who delay retirement.