Pension Benefit Guaranty Corporation:

Financial Condition Improving, but Long-Term Risks Remain

HEHS-99-5: Published: Oct 16, 1998. Publicly Released: Nov 16, 1998.

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Pursuant to a congressional request, GAO reviewed the long-term financial viability of the pension insurance programs, focusing on: (1) the financial condition of the insurance programs and trends in the plans they insure; (2) the impact the Retirement Protection Act of 1994 has had on the financial condition of the Pension Benefit Guaranty Corporation (PBGC) and insured plans; (3) risks to PBGC's solvency; (4) PBGC's efforts to forecast its future financial condition; and (5) PBGC's efforts to improve administration of the programs.

GAO noted that: (1) PBGC's financial condition has improved significantly over the past few years; (2) the agency has had a surplus for the past two fiscal years, after having a deficit for over 20 years; (3) the single-employer program improved from a deficit of $2.9 billion in 1993 to a surplus of nearly $3.5 billion in 1997; (4) the multiemployer program has maintained a surplus since the early 1980s; (5) like that of PBGC, the financial condition of most insured, underfunded plans has also improved, but underfunding among some large plans continues to pose a risk to the agency; (6) the improved financial condition of both PBGC and the plans it insures has resulted from better funding of underfunded plans and economic improvements; (7) over the past decade, the number of insured single-employer plans has fallen by more than one-half, to about 43,000, because of the termination of many small plans; (8) the number of participants, about 33 million, has increased slightly because of an increase in the number of large plans; (9) the number of multiemployer plans and participants has remained relatively stable since the early 1980s; (10) the declining number of active workers participating in multiemployer plans could increase the level of unfunded liabilities and place increased financial burdens on the multiemployer program; (11) PBGC experienced an increase in premium revenue immediately following passage of the legislation that contributed to its improved financial condition; (12) despite improvements in PBGC's financial condition, risks to the agency's long-term financial viability remain; (13) factors beyond PBGC's control could increase plan underfunding and PBGC's liabilities by reducing the future returns on assets; (14) PBGC is developing a new single-employer program forecasting model designed to estimate the probability of bankruptcies and terminations of underfunded plans under various economic conditions; (15) in addition, PBGC has already improved its methodology for forecasting the financial status of the multiemployer program; (16) PBGC has also improved its techniques for estimating its liability for plans that are likely to require future financial assistance and is now more closely monitoring the companies with underfunded plans that represent its biggest risks; and (17) while PBGC has made progress, it is important that it continue its efforts to reduce the time it takes to assume control of terminated plans, improve the timeliness of final determinations of participants' benefits, and monitor the performance of contractors that assist PBGC in administering the insurance programs.

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