Defined Benefit Pensions: Hidden Liabilities From Underfunded Plans and Potential New Obligations Confront PBGC

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.