Long-term structural and legal framework issues have left the Pension Benefit Guaranty Corp. with a significant long-term deficit.[@@]
Federal Comptroller General David Walker gave that assessment Thursday, testifying at a hearing of the U.S. House Budget Committee. He said “comprehensive reform is required to ensure that workers and retirees receive the benefits promised to them.”
Among the reforms the head of the U.S. Government Accountability Office suggested were:
- Revising current funding rules to create incentives for plan sponsors to adequately finance promised benefits.
- Stopping underfunded plans from paying lump sums and granting benefit increases.
- Making plan information easier for stakeholders to get without drowning sponsors in paperwork.
PBGC insurance backs pension benefits for 34 million workers and retirees in more than 29,000 single-employer defined benefit plans.
In fiscal year 2004, the PBGC single-employer pension insurance program incurred a net loss of $12 billion, and the program’s accumulated deficit increased to $23 billion.
Although the PBGC and private pension plans have obvious problems, “pension reform is only a part of a broader fiscal, economic and retirement security challenge,” Walker said.
Reform should also be considered in the context of the problems facing the nation’s Social Security system, he added.
One problem threatening pension system stability is that “most sponsors most years made no cash contributions to plans, but satisfied such funding requirements through the use of accounting credits,” Walker said.
But plan sponsors don’t have to update the value of those credits, and, if the values are out-of-date, plan funding levels may be significantly overstated, Walker said.
Moreover, “from 1995 to 2002, an average of only 2.9 of the 100 largest defined benefit plans each year were assessed an additional funding charge, even though on average 10% of plans reported funding levels below 90%,” Walker said.
Only a few plan sponsors made cash contributions to plans between 1995 and 2002, Walker added.