Defined Benefit Pensions:

Hidden Liabilities From Underfunded Plans and Potential New Obligations Confront PBGC

T-HRD-92-6: Published: Oct 31, 1991. Publicly Released: Oct 31, 1991.

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GAO discussed some of the financial problems facing the Pension Benefit Guaranty Corporation (PBGC), focusing on how hidden liabilities affect PBGC. GAO noted that: (1) the current threat to PBGC comes from a few seriously underfunded plans in industries experiencing financial troubles; (2) it is difficult to estimate future PBGC liabilities because of difficulties in predicting if or when underfunded plans will terminate and what a plan's financial position might be at termination; (3) bankruptcy court decisions on PBGC recovery claims and proposed legislation to extend coverage to new beneficiaries raise the prospect of increased obligations for PBGC to pay in the future; and (4) PBGC should have sufficient assets to cover its benefit payments. GAO also noted that, to lessen the size or impact of future claims, Congress could: (1) reduce the level of benefit currently afforded plan participants; (2) strengthen pension funding requirements for underfunded plans again to increase pressure on plan sponsors to honor their pension promises; (3) raise premium; and (4) clarify the law to give PBGC claims a better standing in bankruptcy courts.

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