The Risk Exposure of the Pension Benefit Guaranty Corporation

The recent transfer of several large defined-benefit pension plans to the federal Pension Benefit Guaranty Corporation (PBGC) by U.S. airline and steel companies has drawn attention to the potential cost of the government’s pension insurance program. Although current law gives PBGC no claim on federal financial resources, the possibility of lost pension benefits or future federal legislation to cover those losses has increased interest in policies to strengthen PBGC’s finances.

Evaluating such policies is complicated by the budgetary treatment of PBGC. Under current practice, some of the effects of policy changes are not recognized in the budget for many years. House Budget Committee Chairman Jim Nussle has asked the Congressional Budget Office (CBO) to evaluate the current budgetary treatment of PBGC and identify changes in accounting that would increase the accuracy, relevance, and reliability of budget estimates for insurance and related federal programs.

This paper is a partial response to the Chairman’s request. It estimates the market value of federal pension insurance, analyzes options for reducing future shortfalls, and identifies budgetary alternatives that would make PBGC’s finances more transparent to the Congress and the public. Consistent with CBO’s mandate to provide objective, impartial analysis, the report makes no recommendations.