The Pension Benefit Guaranty CorporationEstablished by ERISA in 1974, the Pension Benefit Guaranty Corporation (PBGC) is essentially a government-owned nonprofit insurance company. Private-sector employers offering defined-benefit plans pay premiums to the corporation. In exchange, the PBGC guarantees that benefits promised under the insured plans will be paid, up to a certain limit, if a plan closes down without sufficient funding to meet its obligations. With the passage of the Deficit Reduction Act of 2006, the premium for most single-employer plans is a flat $30 per participant, an amount set by statute. For plans that are deemed to be underfunded, an additional premium applies--$9 per $1,000 of vested liability that is unfunded. For multiemployer plans, the premium is a flat $8 per participant. For plans terminating in 2006, the limit on monthly benefits for a participant retiring at age 65 is $3,971.59. The limit is lower for plans that shut down in earlier years and for participants that retire at a younger age. Until the mid-1990s, the PBGC's single-employer program operated under a chronic deficit, raising the possibility that a taxpayer-funded bailout might eventually be necessary. Between 1996 and 2000, higher investment income from a rising stock market and fewer losses from plan terminations placed the PBGC on a stronger financial footing. In 2001, for the first time since 1993, the PBGC suffered losses (of $2.1 billion) but finished the year with a net asset balance of $7.8 billion. In each subsequent year, it has suffered further losses, thus returning to a deficit position. The corporation's forecasting models indicate a 98 percent probability that the deficit will persist for at least 10 years. Furthermore, the multiemployer program, which had historically run surpluses, moved into a deficit position in 2003. For more details on the financial condition of the PBGC, see Congressional Budget Office, The Risk Exposure of the Pension Benefit Guaranty Corporation (September 2005).
|