The federal agency that guarantees private-sector pensions saw its deficit swell to $26 billion in the past year — the largest in its 37-year history. The agency guarantees the pensions of 44 million workers.
The Pension Benefit Guaranty Corp. reported the growing deficit in its latest annual report, released Tuesday. The disclosure adds new urgency to the agency’s efforts to persuade Congress to change its premium structure in ways that could triple pension guarantee costs for businesses whose retirement funds have the greatest risk of running out of money.
Without a new round of fee increases, the PBGC — which is funded by a combination of company premiums and investment returns on its $81 billion in assets — could eventually require a taxpayer bailout, according to its director, Joshua Gotbaum.
“The PBGC has never taken a dime of taxpayer money,” he said. “Part of the reason we are asking that our premiums be reformed and raised is so we can continue avoiding to ask for taxpayer money.”
Gotbaum said no bailout is needed anytime soon. The PBGC says that one of its funds, known as the multi-employer insurance program, has a 6 percent chance of being insolvent by 2020 and a 30 percent chance of running out of money by 2030.
In addition to its growing deficit, the PBGC said that at the end of 2010 it faced $227 billion in potential liabilities from fiscally weak companies whose pension plans could end up in its hands sometime in the future.
In 2011, the agency paid nearly $5.5 billion in benefits to 873,000 retirees whose plans have failed, and 628,000 other people are slated to collect retirement benefits from the agency once they are eligible.
The agency assumed responsibility for the pensions of 57,000 people in newly failed plans in fiscal 2011.
The agency has proposed increasing premiums and setting prices in accordance with the perceived riskiness of the pension plans it insures. Additionally, the agency wants Congress to cede to it the authority to set future premiums.
So far, the PBGC’s premium reform proposals have gone nowhere.
After they were unveiled as part of President Obama’s budget request earlier this year, the business community registered strong objections, both to the premium increases and the idea of rearranging how they are determined.
Many companies are still reeling from the economic downturn and feel financially strapped by the spiraling cost of employee health-care coverage.
They see the prospect of any increases in the cost of providing benefits to employees as a non-starter.
Gotbaum says the pension insurance premiums account for a minuscule amount — $65 per year per employee.
Still, business say that any increases would further shrink the dwindling number of private employers offering pension plans.
Only 16 percent of private-sector employees have defined-benefit plans, compared with 39 percent in 1980, according to the Center for Retirement Research at Boston College.
The median 401(k) balance for workers ages 55 to 64 is $78,000, the center said, which is hardly a secure nest egg. And about half of all workers have no retirement plan other than Social Security.