Pension Benefit Guaranty Corporation Insurance Programs

Why It's High Risk

The Pension Benefit Guaranty Corporation's (PBGC) single- and multi-employer insurance programs insure the pension benefits of 44 million participants in more than 29,000 private defined benefit (DB) plans.

GAO designated the single-employer program as a high risk area in July 2003 because of concern about the program's long-term net financial position. Other issues also contribute to the programs' being on the high-risk list:

• estimated underfunding of financially weak firms by about $161 billion — a figure that may worsen because of the financial crisis and recession;
• exposure of insurance programs to the threat of terminations of large underfunded plans sponsored by financially weak firms, particularly automobile industry plans;
• monitoring of changes in funding rules and premiums being phased in according to provisions in the Pension Protection Act of 2006 (PPA), and subsequent measures that have granted funding relief to DB sponsors; and
• governance and program management challenges.

^ Back to topWhat We Found

PBGC's single- and multi-employer insurance programs are designated high risk because of the ongoing threat of losses from the termination of underfunded plans. PBGC reported that these programs, based on unaudited financial numbers as of September 30, 2009, had a $22 billion deficit, up dramatically from its $11.2 billion deficit reported as of September 30, 2008. While PPA tightened some funding rules for DB plans, subsequent measures have given funding relief to certain sponsors and delayed implementation of certain aspects of the Act. The financial crisis and recession have likely eroded the funding of many large plans and lowered the credit rating of many sponsors, and the financial fate of automobile industry firms, which sponsor very large DB plans, is also uncertain. These developments likely increase PBGC's risk exposure, perhaps significantly.

Furthermore, we found that:

• in 2008, the agency decided to change its investment policy to increase its allocation of assets invested in equities and other, new asset classes, while decreasing its fixed-income investment allocation. PBGC believed this change will help it meet its long-term financial obligations, but, after partial implementation, PBGC has since ceased activity to implement the policy.
• PBGC's governance structure and program management need improvements. PBGC's board of directors has only three members, meets infrequently, and is limited in its ability to provide policy direction and oversight.
• PBGC lacks a strategic approach to its acquisition and human capital management needs.

^ Back to topWhat Needs to Be Done

Congress may need to:

• carefully monitor the implementation and impact of PPA on the financial health of PBGC's programs, and on DB plans generally.
  Highlights of GAO-09-271 (PDF)
• take additional action to safeguard the private pension system's role in national retirement security.
  Highlights of GAO-09-271 (PDF)

PBGC also faces a number of strategic human capital and administrative challenges. PBGC needs a formal and effective strategic plan in place to manage its workforce, including its contractor staff. Additionally, PBGC must take a more strategic approach in preparing for and managing benefits administration for large, complex plans.

^ Back to topKey Reports

Pension Benefit Guaranty Corporation: More Strategic Approach Needed for Processing Complex Plans Prone to Delays and Overpayments

GAO-09-716, August 17, 2009

Summary (HTML)   Highlights Page (PDF)   Full Report (PDF, 91 pages)   Accessible Text   Recommendations (HTML)

Pension Benefit Guaranty Corporation: Financial Challenges Highlight Need for Improved Governance and Management

GAO-09-702T, May 20, 2009

Summary (HTML)   Highlights Page (PDF)   Full Report (PDF, 25 pages)   Accessible Text

Pension Benefit Guaranty Corporation: Need for Improved Oversight Persists

GAO-08-1062, September 10, 2008

Summary (HTML)   Highlights Page (PDF)   Full Report (PDF, 34 pages)   Accessible Text   Recommendations (HTML)

Pension Benefit Guaranty Corporation: Some Steps Have Been Taken to Improve Contracting, but a More Strategic Approach is Needed

GAO-08-871, August 18, 2008

Summary (HTML)   Highlights Page (PDF)   Full Report (PDF, 45 pages)   Accessible Text   Recommendations (HTML)

More Reports