NEWS RELEASE

May 20, 2009
PR-09/17
For additional information:
Jason Hammersla
202-289-6700
jhammersla@abcstaff.org

Record PBGC deficit requires Congressional action to strengthen defined benefit pension plan system

WASHINGTON, D.C. — “The $33.5 billion dollar projected deficit of the Pension Benefit Guaranty Corporation (PBGC) should prompt President Obama and Congress to strengthen the voluntary employer-sponsored defined benefit pension plan system,” American Benefits Council President James A. Klein said today upon the PBGC’s release of 2009 deficit figures. The Senate Special Aging Committee is expected to discuss the matter in a hearing this afternoon.

“The key to shoring-up the employer-sponsored defined benefit pension system is to immediately address the challenges companies face in meeting drastically unanticipated increases in pension obligations caused by the recent economic turmoil. We urge the President and Congress to enact defined benefit plan funding relief as soon as possible so companies can navigate the current economic downturn and maintain their plans,” Klein said.

“Three factors contribute to the increased deficit: a decline in plan assets mirroring the overall economic downturn, a dramatic drop in interest rates used in determining a plan’s funded status, and terminations of underfunded plans. Congress can not directly alter interest rates or the stock market, but it can enact legislation that allows companies a smoother pathway toward the full funding envisioned by the Pension Protection Act of 2006, and thereby help slow the decades-old trend toward terminating pension plans,” Klein said.

“Without dismissing the importance of the new deficit figure, it should be kept in proper perspective. The $11 billion surplus the PBGC enjoyed just a few years ago was no more an indication of a healthy pension system than the current deficit is an indication of a crisis. Rules enacted in 2006 make a pension plan’s funded status highly sensitive to even modest changes in the stock market and interest rates — and changes over the last couple years have been anything but modest. Any time you examine a long-term obligation at a snapshot point in time, the situation will appear overly optimistic or pessimistic,” Klein said.

“The PBGC’s financial strength is served by a stable employer-sponsored pension system. The top pension priority for President Obama and Congress should be to arrest the decline in pension plans by allowing companies — especially in this current economic environment — to fund their plans on a logical and smooth basis. Healthy companies equal healthy pension plans equal greater financial security for retirees and a reduction in liability for the PBGC and the rest of the employer PBGC premium payors. It is really as simple as that,” said Klein.

“It is also important to recognize that the PBGC’s shift to a more diversified investment portfolio, with increased long-term investment in equities, was a prudent move, notwithstanding the current stock market downturn. This investment strategy gives the PBGC the best chance of minimizing future deficits,” Klein said.

“It is important to recognize that a diversified portfolio is an important and valuable tool in preparing for long-term obligations and has proven to be successful over many decades and countless economic cycles. Again, pensions are long-term obligations. The current market downturn should not reverse a practical investment strategy that provides long-term growth for the PBGC’s investments,” Klein said.

For more information, or to arrange an interview with Council staff, please contact Jason Hammersla, Council director of communications, at jhammersla@abcstaff.org or by phone at 202-289-6700 (office) or (202) 253-5458 (cell).

The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council’s members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.