The Pension Benefit Guaranty Corp. has overstated its deficit in ways that could cause problems for defined benefit plan sponsors and participants, according to the American Benefits Council.[@@]

The American Benefits Council, Washington, an employer group, has published an analysis questioning PBGC officials’ estimate that the agency faces a deficit of more than $23 billion.

The authors of the council analysis contend that the PBGC deficit estimate is based on unreasonably low interest rate assumptions.

“Using slightly more reasonable assumptions, this deficit could be reduced to $14.3 billion, and, under one scenario, could be as low as $4.6 billion,” the authors write.

Members of Congress are paying more attention to the PBGC these days because of efforts by several large airlines to shut down high-cost pension plans.

“The prospect of further high-profile terminations of under funded pension plans makes it more important than ever to understand the true dimensions of the PBGC’s deficit,” says American Benefits Council President James Klein.

PBGC officials say they use conservative interest rate assumptions to make sure that plan sponsors are contributing enough assets and earning high enough investment returns to back up their promises to pension plan members.

But the benefits council says unreasonably low interest rate assumptions by decreasing the benefits plan participants get when plans are terminated.

Unreasonably low interest rate assumptions also may force troubled employers to put in extra cash, adding stress to those companies’ balance sheets, the council says.

The council supports the establishment of a permanent interest rate for defined benefit plan funding purposes.

The council also wants to see the government improve PBGC investment returns, increase the flexibility of plan funding rules, and encourage the use of plans that combine defined benefit and defined contribution plan features.

“The best way to safeguard the American worker’s retirement benefits is to encourage defined benefit plan sponsorship by providing flexibility and predictability in pension funding,” Klein argues.