NCPA - National Center for Policy Analysis

The Pension Benefit Guaranty Corporation: Who Will Guarantee This Guarantor?

July 16, 2012

Defined-benefit pension plans are very difficult to finance successfully -- that is why so many of them, both private and public, are deeply underfunded. It is also why they are a disappearing financial species, as numerous corporations including General Motors move away from them, says Alex J. Pollock is a resident fellow at the American Enterprise Institute.

Unfortunately, these chronically underfunded plans are being left at the door of taxpayers. The Pension Benefit Guaranty Corporation (PBGC) was created to be a self-financing guarantor of corporations' pension plans, paying out in the case that companies could not. Unfortunately, the self-financing requirement does not look to be panning out.

  • The PBGC insures two separate programs, Single-Employer and Multi-Employer, which are currently running $23 billion and $3 billion deficits, respectively, for a total of $26 billion.
  • Further, these losses are only expected to increase, as many of the defined-benefit plans currently under the supervision of the PBGC are woefully close to insolvency.
  • According to a recent estimate by Credit Suisse, multiemployer plans nationwide have liabilities $369 billion greater than assets.
  • The figure for single-employer plans ($357 billion according to the actuarial firm Milliman) is comparable.

These losses would not be the concern of taxpayers if the PBGC operated according to its mandate, which requires that the entity be capable of covering its own losses. However, the debt of government-created institutions all-too-often finds itself to be a vital taxpayer interest that necessitates saving.

  • The PBGC remarked in its latest annual report that its founding act "provides that the U.S. government is not liable for any obligation or liability incurred by PBGC."
  • This, unfortunately, is remarkably similar to Fannie Mae's statement, one month before it failed in 2008, that "the U.S. government does not guarantee, directly or indirectly, our securities or other obligations."
  • That latter case has resulted in the federal government shipping some $116 billion in the direction Fannie Mae

This begs the question, how much will the PBGC require the taxpayers to put up to cover its irresponsible lending practices?

Source: Alex J. Pollock, "The Pension Benefit Guaranty Corporation: Who Will Guarantee This Guarantor?" The American, June 25, 2012.

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