November 16, 2011
For additional information:
Jason Hammersla
202-422-4652 (cell)

PBGC’s deficit announcement a "non-event"

Questionable math should not be used to justify premium increases for pension plans

WASHINGTON, DC — The American Benefits Council reacted today to the annual report issued by the Pension Benefit Guaranty Corporation (PBGC, the federal insurer of employee pension plans), in which they report a $34 billion deficit for the 2012 fiscal year. In 2011, the agency reported a deficit of $26 billion.

"This number is terribly misleading. The public should not be led to believe the PBGC is in danger of a bailout and Congress and the Obama Administration should not use this number as a pretext to raise premiums paid by pension plan sponsors," American Benefits Council President James A. Klein said today.

"As employer pension plan sponsors have repeatedly pointed out, all pension fund liabilities — including the PBGC's — are overstated by the historically low interest rates of the past several years. Keeping interest rates low is good policy to stimulate the economy, but it has the perverse effect of making very secure pension funds — and the PBGC’s own situation — appear underfunded," Klein noted.

"Employers have no incentive to sugar-coat the situation, since it is they — the PBGC's customers — who will face demands for higher premiums if the agency has insufficient assets to pay promised benefits." Klein said.

"PBGC will pay benefits to current and future retirees for decades into the future, through numerous economic cycles. To determine the PBGC’s financial situation based on today's incredibly low interest rates is irresponsible. It is no more accurate to assert a large deficit today, than it was to claim an $11 billion surplus about a decade ago when interest rates were high. Neither of these skewed "snapshot" assessments accurately reflects the long-term condition of the pension system, nor the PBGC's financial situation," noted Klein.

Further, the Council believes the methodology used by PBGC to calculate its deficit is seriously flawed and has never been fully examined by Congress. "Before we can determine PBGC's true financial position, the assumptions and models used by the agency to calculate its deficit must be scrutinized, especially if PBGC is using them to charge its customers higher premiums."

The recent GAO report, Pension Benefit Guaranty Corporation (PBGC): Redesigned Premium Structure Could Better Align Rates with Risk from Plan Sponsors, attempts to make a case for increasing premiums but never fully examines the true dimensions of the PBGC’s "deficit" or the ramifications for the defined benefit pension system.

"We urge Congress and PBGC to recognize the challenges of voluntary employer sponsorship of pensions and to avoid imposing higher premiums on companies that — against great odds — are maintaining their plans and responsibly funding them. That effort starts by not portraying a misleading picture of the PBGC's financial condition," Klein concluded.

The Council has prepared the following two-page documents describing in detail why the information reported by PBGC must be more carefully scrutinized.

PBGC Deficit: A Non-Event on the Horizon

Ten reasons to doubt PBGC’s reported deficit

For more information on defined benefit pension plans and the PBGC, or to arrange an interview with Council policy staff, please contact Jason Hammersla, Council director of communications, at or by phone at 202-289-6700 (office) or (202) 253-5458 (cell).

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The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.