Overheard @: 'We had a $3 billion investment loss'

If the recession drags on, it will be a red-hot summer for the PBGC -- emphasis on "red."

In a report from BenefitNews.com, the Pension Benefit Guaranty Corp. reports that the agency’s underfunded liabilities for its single-employer insurance program hit an all-time high of $33.5 billion, surpassing the former record of $24 billion in 2004.

“The reason that our deficit grew is not because of investment losses, rather because of more plan terminations coming through the agency since the last fiscal year,” Constance Markakis, senior attorney advisor in the legislative and regulatory department at PBGC, said late last week. “We had a $3 billion investment loss on our $63 billion assets portfolio. Also, 70% of our assets are invested in fixed-income.”

Still, the recession and the stock market decline means more defined benefit plans are substantially underfunded, thus seeking distressed terminations. “The $33.5 billion includes both actual terminations and probable terminations, which are terminations that we predict will occur within the next year,” explained Markakis.

PBGC insures the pensions of about 33.8 million workers and retirees in about 28,000 private-sector DB plans under its single-employer insurance program and 10.1 million participants under its multiemployer program in about 1,500 plans, according to the Employee Benefit Research Institute.

News You Can Use: PBGC assesses DB plan terminations

The Pension Benefit Guaranty Corporation issued its Pension Insurance Data Book 2007, which shows that small plans have been terminating at a faster rate than larger plans.

For example, 75% of single-employer plans that terminated their plans had fewer than 25 participants, and more than 90% had fewer than 100 participants. Yet less than one percent of plans with 100 or more participants terminated the plan in 2007, according to the book, which outlines statistical trends for DB plans in the private sector.

Overall, 4.2% of single-employer plans insured by PBGC terminated their plans in 2007. The study examined 1,219 plans. The primary reasons why plan sponsors terminated the plans included:

• The company was restructuring its retirement program
• Adverse business conditions
• The expense of plan administration
• The sale of the company

Related EBN coverage:

• Risk management of pension assets trumps returns