A change in federal treatment of airline pension plans boosted the performance of the Pension Benefit Guaranty Corp. in fiscal year 2006.
The PBGC, the federal pension insurance program, is reporting $4.2 billion in net income for the 12-month period that ended Sept. 30 on $3.8 billion in premium revenue and investment revenue, up from $430 million in net income on $5.5 billion in premium revenue and investment revenue for fiscal year 2005.
Premium revenue from the program, which insures the pensions of 34 million Americans, held steady at about $1.5 billion, but a sharp drop in returns on fixed-income investments caused investment income to drop to $2.2 billion in fiscal 2006, from about $4 billion in fiscal 2005, the PBGC says.
Net income increased in spite of the drop in investment income because plan accounting provisions in the new Pension Protection Act shifted some airline pension plans into the “reasonably possible” failure category, from the “probable” failure category. That move added $4.8 billion to the PBGC’s net income, the PBGC says.
Although the number of participants and retirees in PBGC-administered plans held steady at 1.3 million, the amount of benefits paid increased to $4.1 billion, from $3.7 billion.
The PBGC continues to expect many more plans to fail, but it says the magnitude of its exposure may have dropped in fiscal year 2006.
Thanks to an increase in employer retirement plan contributions and stronger plan investment returns, PBGC exposure to “probable” plan failures fell to $73 billion on Sept. 30, from $108 billion a year earlier, PBGC officials estimate.
A variety of factors also helped the PBGC narrow the gap between its assets and its obligations.
The shortfall fell to $19 billion on $61 billion in assets Sept. 30, down from $23 billion on $58 billion in assets a year earlier.