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Financial Planning > UHNW Client Services > Family Office News

GAO%3A PBGC Intentionally Fogs Announced Claims Estimates

By Matt Brady

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The costs of bailing out failed defined benefit pension plans often differ significantly from the costs announced to the news media.[@@]

An official at the Government Accountability Office concludes in a new letter to Congress that the Pension Benefit Guaranty Corp. generally does not include its previously booked claims in the announcements it makes about failed plans.

The PBGC leaves out the information about previously booked claims in part because of concerns that including that information could affect PBGC litigation, Barbara Bovbjerg, GAO director of education, workforce and income security issues, writes in a letter to Reps. John Lewis, D-Ga., the senior Democratic member of the House Ways and Means Oversight subcommittee, and Earl Pomeroy, D-N.D.

PBGC officials believe that releasing previously booked claim amounts would give members of the public the ability to compare the PBGC’s booked liability for a plan and the amount of underfunding that the plan is experiencing, Bovbjerg says.

Pension plan sponsors “would resist a settlement with PBGC for more than the amount of PBGC’s previously booked losses,” Bovbjerg says. “Another consideration is that this information could also have a negative impact on a company’s ability to obtain additional financing and could worsen its financial condition.”

The GAO’s investigation found differences of millions of dollars between the announced claims amount and the PBGC’s actual expected claims amount.

In one case, the PBGC announced $2.1 billion in claims for the United Airlines Ground Employees plan, when the actual expected amount of claims was $471 million greater. The PBGC also expected millions more in claims from the Penn Traffic Company’s plan and the United Airlines pilot’s pension plan than it originally announced. In another case, the PBGC announced claims figure for the US Airways Inc. plan that was $126 million higher than the actual expected amount of claims.

Revealing the actual expected claims information would give members of the public a better understanding of the PBGC’s finances, and the PBGC already is looking into this issue, Bovbjerg says.

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