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Financial Planning > Behavioral Finance

PBGC Deficit Hits $34 Billion; Benefits Council Calls Number Misleading

By Melanie Waddell

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The Pension Benefit Guaranty Corp. (PBGC) on Friday reported a $34 billion deficit for fiscal year 2012, a significant jump from the agency’s $26 billion deficit last year.

While the PBGC noted in a release announcing the deficit that this year’s amount is the largest in PBGC’s 38-year history, the American Benefits Council (ABC) called the deficit number “misleading.”

The public, “should not be led to believe the PBGC is in danger of a bailout and Congress and the Obama Administration should not use this number as a pretext to raise premiums paid by pension plan sponsors,” said ABC President James Klein. “As employer pension plan sponsors have repeatedly pointed out, all pension fund liabilities—including the PBGC’s—are overstated by the historically low interest rates of the past several years. Keeping interest rates low is good policy to stimulate the economy, but it has the perverse effect of making very secure pension funds—and the PBGC’s own situation—appear underfunded.”

To determine the PBGC’s financial situation based on today’s “incredibly low interest rates is irresponsible,” Klein added. “It is no more accurate to assert a large deficit today, than it was to claim an $11 billion surplus about a decade ago when interest rates were high. Neither of these skewed ‘snapshot’ assessments accurately reflects the long-term condition of the pension system, nor the PBGC’s financial situation.”

ABC believes the methodology used by PBGC to calculate its deficit is “seriously flawed” and has never been fully examined by Congress. “Before we can determine PBGC’s true financial position, the assumptions and models used by the agency to calculate its deficit must be scrutinized, especially if PBGC is using them to charge its customers higher premiums,” Klein said.

In 2012, PBGC said it paid nearly $5.5 billion in benefits to 887,000 retirees whose plans had failed; 614,000 future retirees will receive benefits when they become eligible. In 2012, the agency assumed responsibility for the benefits of 47,000 people in newly failed plans.

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