Bankruptcies Swell Deficit at Pension Agency to $33.5 Billion
By Eric Lipton
New York Times
Wednesday, May 20, 2009
WASHINGTON — The deficit at the federal agency that guarantees
pensions for 44 million Americans more than doubled in the last
six months to a record high, reaching $33.5 billion, largely as
a result of the surging number of bankruptcies among companies
whose pensions it must now take over.
The Pension Benefit Guaranty Corporation, as of October, had
faced a shortfall of $11 billion. But the combined effect
of lower interest rates, losses on its investment portfolio and
the increase in the number of companies filing for bankruptcy
protection resulted in a deepening of its estimated deficit,
officials said Wednesday.
Because the agency has $56 billion in assets — most of which is
invested in Treasury bonds — it is not facing any prospect of
default in the short term, officials said.
“The PBGC has sufficient funds to meet its benefit obligations
for many years because benefits are paid monthly over the
lifetimes of beneficiaries, not as lump sums,” the agency’s
acting director, Vince Snowbarger, said in a statement
Wednesday. “Nevertheless, over the long term, the deficit
must be addressed.”
The agency, created by Congress in 1974, is now paying benefits
of about $4.3 billion a year to about 640,000 people.
Employers nationwide with so-called defined-benefit pension
programs pay insurance premiums to the agency in return for a
promise that it will take over their pension plan if a company
On Tuesday, for example, the agency announced that it had
assumed the pension plan once run by the Lenox Group, a bankrupt
maker of tableware, giftware and collectibles based in
Minn. Assuming control of
pensions for this company’s 4,300 workers will cost the agency
an estimated $128 million — the difference between what Lenox
had in its pension fund and what the total estimated obligations
With the bankruptcy of Chrysler and a possible similar move by
General Motors, the agency is facing a record surge in demand.
The new deficit estimate takes into account both pensions it has
taken over in the last six months, and others it believes it
will have to assume control of soon.
In the statement, the agency said that the $22.5 billion deficit
increase was the result of about $11 billion in completed and
probable plan terminations, about $7 billion from a decrease in
the interest factor used to value liabilities, about $3 billion
in investment losses and about $2 billion in actuarial charges.
Options to close the deficit include a federal bailout by
taxpayers, a change in insurance premiums it charges employers
or a successful strategy to increase its investment returns.
Last year, the agency’s board — made up of the secretaries of
the Labor, Treasury and Commerce Departments — voted to allow it
to shift its investment strategy to put more money into stocks,
private equity and real estate, in an effort to reduce the
If that shift had taken place, the losses would most likely have
been larger. But a relatively small amount of the funds
had already been shifted to stocks, so the losses on the
investment portfolio were responsible for just $3 billion of the
jump in the deficit in the last six months.
The agency’s more aggressive and risky investment strategy, the
rising deficit and questions about possible improprieties by its
former director, Charles E. F. Millard, will all be addressed at
a Senate hearing scheduled for Wednesday afternoon.
Mr. Millard, who resigned in January, has been accused by the
agency’s inspector general of having inappropriate contact with
companies including BlackRock, JPMorgan Chase and Goldman Sachs
as they competed last year for the right to manage $2.5 billion
worth of the agency’s portfolio, contracts that may now be