Deficit Hits Record $26B For Major U.S. Pension Insurer

WASHINGTON (AP) — The federal agency that insures pensions for one in seven Americans ran the largest deficit last year in its 37-year history.

The Pension Benefit Guaranty Corp. said Tuesday that it ran a $26 billion imbalance for the budget year that ended Sept. 30.

The agency has been battered by the weak economy, which has brought more bankruptcies and failed pension plans.

Its pension obligations rose by $4.5 billion. The PBGC also earned less money in the stock market, which helps to fund pension plans. Returns were $3.6 billion, half what it earned the previous year.

Joshua Gotbaum, the agency director, says taxpayers may have to bail out the agency "eventually" if Congress doesn't raise companies' insurance premiums. He didn't give a timeframe.

The agency insures the pensions for nearly 44 million U.S. workers.

The Obama administration put a proposal before Congress in January to increase premiums and tailor them to the size of companies and their level of financial risk. Bigger companies and those at greater risk of failing would pay larger premiums under the plan. Congress hasn't acted on it.

The fees haven't been raised in five years.

Some experts have said the agency eventually will run out of money to pay pension claims unless company pension funds adopt less risky investment strategies or Congress raises the insurance premiums.

But a group representing businesses disputed Tuesday the PBGC's figure of a $26 billion deficit, saying it is exaggerated because the agency's accounting is flawed. The figure makes the situation appear worse than it is and is being used by the PBGC "to justify an enormous premium increase," the American Benefits Council said in a statement.

The agency doesn't expect to run out of money in the next 10 years for the majority of pension plans it has taken over. But its funding for multi-employer pension plans has a 6 percent chance of running out by 2020 and nearly a 30 percent chance of insolvency by 2030, according to the agency's projections.

Multi-employer plans are pension agreements between labor unions and a group of companies, usually in the same industry.

For the budget year that just ended, the agency had $107 billion in pension obligations and only $81 billion in assets to cover them. That added up to the $26 billion shortfall.

Companies whose pension plans failed in the latest year include Alabama Aircraft Industries Inc., Wolverine Tube Inc., mail order firm Harry & David and Johnson Memorial Hospital in Stafford Springs, Conn.

In budget year 2010, the agency ran a $23 billion deficit.

The PBGC was created in 1974 as a government insurance program for traditional employer-paid pension plans. Companies pay insurance premiums to the agency. If an employer can no longer support its pension plan, the agency takes over the assets and liabilities, and pays promised benefits to retirees up to certain limits.

The agency backs defined-benefit plans, which are most prevalent in auto manufacturing, steel, airlines and other industries. It has been in the red for 30 of its 37 years of operation. It did have surpluses in some years in the late 1990s and early 2000s, when fewer companies failed.