GAO-03-1050SP, Pension Benefit Guaranty Corporation Single-Employer Insurance Program: Long-Term Vulnerabilities Warrant 'High Risk' Designation


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entitled 'Pension Benefit Guaranty Corporation Single-Employer 
Insurance Program: Long-Term Vulnerabilities Warrant 'High Risk' 
Designation' which was released on July 23, 2003.

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PENSION BENEFIT GUARANTY CORPORATION SINGLE-EMPLOYER INSURANCE 
PROGRAM: 

Long-Term Vulnerabilities Warrant “High Risk” Designation: 

GAO-03-1050SP

GAO Highlights:

Note: This highlights page is a standalone document, GAO-03-1050SP.

Background: 

The potential losses that PBGC, through its single-employer insurance 
program, might face from the termination of underfunded plans have 
been a longstanding concern of the Congress and GAO. In 1990, as part 
of our effort to call attention to high-risk areas in the federal 
government, we noted that weaknesses in the single-employer insurance 
program’s financial condition threatened PBGC’s long-term viability. 
We stated that minimum funding rules still did not ensure that plan 
sponsors would contribute enough for terminating plans to have 
sufficient assets to cover all promised benefits. In 1992, we also 
reported that PBGC had weaknesses in its internal controls and 
financial systems that placed the entire agency, and not just the 
single employer program, at risk. Three years later, we reported that 
legislation enacted in 1994 had strengthened PBGC’s program weaknesses 
and that we believed improvements had been significant enough for us 
to remove the agency’s high-risk designation. However, given the 
potential for significant changes in the program’s position, we 
continued to monitor the situation.

Early this year, PBGC’s single- employer pension insurance program 
reported a $3.6 billion accumulated deficit for fiscal year 2002, 
brought on by the termination of a number of large underfunded pension 
plans. Given significant risk of termination of other large 
underfunded plans, GAO is assigning PBGC’s single-employer insurance 
program to its “high risk” list, highlighting the need for 
congressional and agency action.

Why Area is "High Risk": 

GAO has designated PBGC’s single-employer pension insurance program as 
“high risk,” adding it to the list of agencies or major programs that 
need urgent attention and transformation to ensure that our national 
government functions in the most economical, efficient and effective 
manner possible. The single-employer insurance program insures the 
pension benefits of over 34 million participants in more than 30,000 
private defined benefit plans. Agencies or programs receiving a “high 
risk” designation receive greater attention from GAO and are assessed 
in regular biennial reports.

After fluctuating over the last decade, the single employer insurance 
program now has a large and growing accumulated deficit. The program 
has moved from a $9.7 billion accumulated surplus in 2000 to a $3.6 
billion accumulated deficit in fiscal year 2002. As of April 2003, the 
program’s unaudited deficit was an estimated $5.4 billion, the largest 
in PBGC history. Furthermore, the degree of underfunding in the 
private pension system has increased dramatically and additional 
severe losses may be on the horizon. PBGC estimates that financially 
weak firms sponsor plans with over $35 billion in unfunded benefits, 
which ultimately might become program losses. The termination of large 
underfunded pension plans of bankrupt firms in troubled industries 
like steel or airlines was the major cause of the deficit. Declines in 
the stock market and interest rates and certain weaknesses in the 
current funding rules contributed to the severity of the plans' 
underfunded condition. However, these factors mask broader trends that 
pose serious program risks. For example, the program’s insured 
participant base continues to shift away from active workers, falling 
from 78 percent of all participants in 1980 to 53 percent in 2000. In 
addition, the program’s risk pool has become concentrated in 
industries affected by global competition and the movement from an 
industrial to a knowledge based economy. In 2001, almost half of all 
program insured participants were in plans sponsored by firms in 
manufacturing industries. 

For additional information, contact Barbara Bovbjerg at (202) 512-
5491, Charles Jeszeck, (202) 512-7036, or George Scott, (202) 512-
5932.


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