The recession has accelerated the terminations of single-employer defined benefit pension plans, a federal official testified to a Senate committee yesterday.
From its beginning in 1974 through the end of fiscal year 2008, the Pension Benefit Guaranty Corp. has terminated almost 4,000 single-employer defined benefit plans covering some 1.2 million workers and retirees, noted Barbara D. Bovbjerg, director of education, workforce, and income security for the U.S. General Accounting Office.
“Since 2008, the economic downturn has brought a new influx of pension plan terminations to PBGC, and more are expected to follow,” Bovbjerg told members of the U.S. Senate Committee on Health, Education, Labor, and Pensions.
Through second quarter of fiscal year 2009, the PBGC’s deficit had tripled since the end of FY 2008, from about $11 billion to about $33.5 billion, Bovbjerg said. Since then, the influx of large plan terminations has continued.
She noted, for example, PBGC assumed responsibility in August for 6 pension plans of auto parts supplier Delphi Inc., Troy, Mich., covering about 70,000 workers and retirees and underfunded by a total of about $7 billion. “PBGC estimated that it would be liable for about $6.7 billion of this underfunding,” she testified.
When pension plans are terminated, there can be long delays as the PBGC determines final benefit amounts, making it hard for workers to plan for retirement and for retirees who have already retired and who may have come to depend on their monthly pension payment, she noted.
For those who have been receiving overestimated retirement benefits, the news can come as a shock, she said. Those overpayments have to be repaid.
Although PBGC will make preliminary estimates of retirement benefits for terminated plans, it occasionally overestimates or underestimates the benefits, sometimes by half or more, she said. It usually makes final benefit determinations in less than 3 years but can require up to 9 years for complex plans with large numbers of participants.
“As the influx of large, complex plan terminations continues, improvements in PBGC’s processes are urgently needed,” she said.