Pension Agency Reports Record-High Deficit of $26 Billion, Seeks Premium Increases

November 18, 2011

The Pension Benefit Guaranty Corporation, the federal agency that insures private sector defined benefit pension plans, reports having assets of $83 billion but benefit obligations of $107 billion, without counting plans that may fail in the future, for a record deficit of $26 billion.  However, business groups, including the ERISA Industry Committee, the American Benefits Council, and the U.S. Chamber of Commerce say that nearly 80 percent of PBGC's $26 billion deficit can be attributed to artificially low interest rate assumptions.  PBGC director Joshua Gotbaum wants Congress to give the agency authority to set premiums instead of having Congress set the rates.  The agency’s proposal would raise $16 billion in premiums over 10 years by moving from a $35 per participant premium (with variable premiums if a plan is underfunded) to a completely risk-based premium platform, which would significantly raise premiums for those with underfunded plans.  Meanwhile, companies are boosting pension fund contributions to comply with federal funding requirements.  According to Mercer, more than two-thirds of private-sector companies will see their required contributions increase 50 percent this year under the Pension Protection Act, and minimum contributions could double for 25 percent of the companies.