Pension Benefit Guaranty Corporation Insurance Programs

Why It's High Risk

PBGC Insurance Programs

The Pension Benefit Guaranty Corporation (PBGC) insures the pension benefits of 44 million participants in more than 27,000 private defined benefit plans through its single- and multiemployer insurance programs. At the end of fiscal year 2010, PBGC's net accumulated financial deficit for its programs was $23.0 billion. The Pension Protection Act of 2006 (PPA) strengthened some aspects of funding rules and premiums for plans covered by PBGC's insurance programs, but these changes are being phased in slowly in light of the recession. Also, despite improvements in PBGC's operations, weaknesses remain. GAO put the single-employer program on its high-risk list in July 2003 and added the multiemployer program in January 2009.

^ Back to topWhat We Found

PBGC's financial portfolio is now one of the largest of any federal government corporation, with nearly $80 billion in assets. Yet, because of long-term structural challenges, recent investment losses, and the continuing threat of losses from the termination of underfunded plans, PBGC's financial future is uncertain. At the end of fiscal year 2010:

• PBGC's net accumulated financial deficit for its programs was $23.0 billion—an increase of over $11 billion from the end of fiscal year 2008, and significantly worse than in 2000, when PBGC reported a $10 billion surplus.
• PBGC projected $99.4 billion in liabilities under the single-employer program, mostly for benefits owed participants in terminated plans.
• PBGC projected $3.1 billion in liabilities under the multiemployer program, mostly for nonrecoverable financial assistance.

PBGC's Net Financial Position, Single-Employer and Multiemployer Programs Combined

Long-term structural challenges are at the heart of PBGC's difficulties:

• PBGC's premium base has been eroding over time as fewer sponsors are paying premiums for fewer participants. In fiscal year 2010, PBGC insured about half the number of plans it insured 15 years ago.
• Many underfunded defined benefit plans are sponsored by companies that have been hurt by the recession. To the extent these sponsors have a greater likelihood of bankruptcy, their plans are at greater risk of termination.

To respond to these challenges, PBGC has taken various steps to improve its workforce planning and contracting procedures, but weaknesses remain—especially in the areas of governance and strategic management.

• PBGC's current three-member board of directors cannot devote sufficient time to provide adequate policy direction and oversight.
• PBGC's current strategic management does not adequately incorporate goals for
  • setting a long-term, coherent investment policy;
  • determining the optimal mix of contract and federal workers; and
  • addressing delays in determining benefits for participants in large, complex plans that have been terminated.

^ Back to topWhat Needs to Be Done

Various steps are needed to help safeguard the private pension system's role in national retirement security:

• PPA needs to be fully implemented;
  GAO-11-182T
• Congress should expand PBGC's board and encourage PBGC to strengthen its strategic management;
  GAO-07-808,   GAO-09-702T,   GAO-11-182T  
• PBGC should take steps to strengthen its strategic approach in a number of areas, including
  • asset management, by adopting a coherent, long-term investment policy;
    GAO-05-772T,   GAO-08-667  
  • contract workforce management, by including procurement decision making in corporate-level strategic planning; and
    GAO/HEHS-00-130,   GAO-08-871,   GAO-11-182T  
  • benefit determination process management, by establishing separate performance measures for processing terminations of large, complex plans.
    GAO-09-716,   GAO-11-182T  

^ Back to topKey Reports

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