US - The Pension Benefit Guaranty Corporation, the agency responsible for insuring US pension plans, has reported a $3.6bn deficit in its annual report for 2002.
The organisation’s insurance programme for pension plans with a single employer swung from a $7.73bn surplus at the end of fiscal year 2001 to a $3.64bn deficit at the end of fiscal year 2002. The $11.37bn net loss is the largest in the Federal pension insurer's 28-year history.
The PBGC insures the pensions of 34.4 million Americans in 30,660 plans. Of the $11.37bn in losses for 2002, completed and probable pension plan terminations accounted for $9.31bn, or more than 80% of the total. Another key factor was the decline in interest rates, which increased the programme's liabilities by $1.65bn.
The agency estimates that the plans which it insures together owe $300bn more to current and future retirees than they can actually afford to pay. Steel companies were found to be the biggest offenders, erasing $7bn of the agency’s surplus.
Despite this further blow to the confidence of the pensions industry, the PBGC maintains that it can still afford to meet its current obligations.
“The PBGC has sufficient assets to pay benefits to workers and retirees for a number of years,” said executive director Steven Kandarian.
“But given the amount of underfunding in pension plans sponsored by financially troubled employers, we must examine every available option to strengthen the pension insurance programme for the long term.”
Under the PBGC’s Early Warning Program, the agency monitors certain companies with underfunded pension plans to identify corporate transactions that put plan participants and the pension insurance system at risk and to arrange for suitable protections.
In the fiscal year 2002, the agency negotiated $454m in contributions and security for pension plans covering 57,000 participants.
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