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Unless otherwise stated, all years referred to in this paper are fiscal years. Details in the text and tables of this paper may not add to totals because of rounding. |
As part of a broader effort to protect and enhance workers' pension benefits, the Congress in 1974 created a federal program of private pension insurance to be operated by the Pension Benefit Guaranty Corporation. This program has incurred some large claims in recent years, raising questions about several aspects of its operation and about its future financial status. This paper was prepared by the Congressional Budget Office (CBO) at the request of the Subcommittee on Oversight of the House Committee on Ways and Means. It analyzes the pension insurance program and considers issues affecting its future direction. Options that address these issues also are examined. In accordance with CBO's mandate to provide objective and impartial analysis, this paper contains no recommendations.
Bruce Vavrichek of the CBO's Human Resources and Community Development
Division wrote the report, under the direction of Nancy M. Gordon and Martin
D. Levine. Marianne Deignan, formerly of CBO's Budget Analysis Division,
made major contributions throughout the project. In addition, many people
provided valuable contributions, including Emily S. Andrews, John F. Hirschmann,
Richard A. Ippolito, David Lindeman, Marilyn Moon, Alicia H. Munnell, Larry
Ozanne, and Michael F. Pogue. Sherry Snyder edited the manuscript. Norma
A. Leake typed the several drafts and prepared the paper for publication.
Edward M. Gramlich
Acting Director
October 1987
SUMMARY
I - INTRODUCTION
II - THE STRUCTURE OF PRIVATE PENSIONS
III - FEDERAL INSURANCE OF BENEFITS IN SINGLE-EMPLOYER DEFINED-BENEFIT PENSION PLANS
IV - THE FINANCIAL STATUS OF THE PBGC
V - CURRENT ISSUES AND POLICY ALTERNATIVES
| TABLES | |
| S-1. | THE FINANCIAL STATUS OF THE PBGC |
| S-2. | DISTRIBUTION OF NET CLAIMS AGAINST THE PBGC, FISCAL YEARS 1975-1986 |
| 1. | ACCUMULATED DEFICIT OF THE PBGC, AND COMPONENTS OF ANNUAL CHANGE, 1975 THROUGH 1986 |
| 2. | PENSION PLAN TERMINATIONS AND THE CLAIMS EXPERIENCE OF THE PBGC, 1975-1986 |
| 3. | DISTRIBUTION OF NET CLAIMS AGAINST THE PBGC FOR FISCAL YEARS 1975 THROUGH 1986 |
| 4. | FEDERAL BUDGETARY TREATMENT OF THE PBGC, 1975-1986 |
| 5. | CHARACTERISTICS OF PENSION PLANS IN SAMPLE, BY STATUS OF FUNDING, 1984 |
| 6. | DISTRIBUTION OF PENSION PLANS AND PARTICIPANTS IN SAMPLE, BY FUNDING RATIO, 1984 |
| 7. | DISTRIBUTION OF UNFUNDED PENSION LIABILITIES IN SAMPLED PLANS, 1984 |
| FIGURES | |
| SUMMARY | Accumulated Deficit of the Pension Benefit Guaranty Corporation, 1975-1986 |
| 1. | An Example of the Accrual of Annual Pension Benefits |
| 2. | Financial Structure of the Pension Benefit Guaranty Corporation |
| 3. | Accumulated Deficit of the Pension Benefit Guaranty Corporation, 1975-1986 |
In 1974, as part of a broader effort to protect participants in private pension plans, the Congress created a federal program of pension insurance to be operated by the Pension Benefit Guaranty Corporation (PBGC). The purpose of this agency is to ensure that workers receive certain retirement benefits promised by their employer, if their pension plan is terminated with insufficient assets to pay for these benefits.
Almost from the start, the pension insurance program for single-employer plans has had financial difficulties, and the PBGC itself has accumulated a large and growing deficit. In recent years, the Congress has responded to these and related issues by making changes in pension policies generally and by modifying the pension insurance program in particular. With the near tripling of the program's accumulated deficit during 1986 to $3.8 billion, however, concern has been expressed that additional changes are needed to assure the program's financial viability.
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