The Future of the Defined Benefit System and the Pension Benefit Guaranty Corporation: Highlights of a Gao Forum

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DIANE Publishing, 2005 - 59 pages
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Employer-sponsored defined benefit pension plans (DBPP) face unprecedented challenges in the midst of significant changes in our nation's retirement landscape. Many DBPP & the fed. agency that insures them, the Pension Benefit Guaranty Corp. (PBGC), have accumulated large & growing deficits that threaten their survival. Meanwhile, the percentage of Amer. workers covered by DBPP has been declining for 30 years, reflecting a movement toward defined contribution plans (e.g., 401(k) plans). To address these issues, a diverse group of knowledgeable individuals was convened -- incl. gov't. officials, researchers, accounting experts, actuaries, plan sponsor & employee group rep., & members of the investment community. Charts & tables.

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Page 40 - Notes: Although expiring tax provisions are extended, revenue as a share of GDP increases through 2015 due to (1) real bracket creep, (2) more taxpayers becoming subject to the AMT, and (3) increased revenue from tax-deferred retirement accounts. After 2015, revenue as a share of GDP is held constant.
Page 3 - The highlights summarized in this report do not necessarily represent the views of any individual participant or the organizations that these participants represent, including GAO. I want to thank all the forum participants for taking the time to share their knowledge, insights, and perspectives. We at GAO will benefit from these insights as we carry out our work for the Congress and the country. I look forward to working with the forum's participants on this and other issues of mutual interest and...
Page 6 - In fiscal year 1996, the program had its first accumulated surplus, and by fiscal year 2000, the accumulated surplus had increased to about $10 billion, in 2002 dollars. However, the program's finances reversed direction in 2001, and at the end of fiscal year 2002, its accumulated deficit was about $3.6 billion. In July 2003, we designated the single-employer insurance program as "high risk...
Page 15 - Even more problematic than the possibility of falling premium income may be that PBGC's premium structure does not reflect many of the risks that affect the probability that a plan will terminate and impose a loss on PBGC. While PBGC charges plan sponsors a variable-rate premium based on the plan's level of underfunding, premiums do not consider other relevant risk factors, such as the economic strength of the sponsor, plan asset investment strategies, the plan's benefit structure, or the plans demographic...
Page 4 - Act (ERISA) of 1974, few rules governed the funding of defined-beneflt pension plans, and participants had no guarantees that they would receive the benefits promised. When Studebaker's pension plan failed in the 1960s, for example, many plan participants lost their pensions.' Such experiences prompted the passage of ERISA to better protect the retirement savings of Americans covered by private pension plans. Along with other changes, ERISA established PBGC to pay the pension benefits of participants,...
Page 5 - PBGC receives no direct federal tax dollars to support the single-employer pension insurance program. The program receives the assets of terminated underfunded plans and any of the sponsor's assets that PBGC recovers 16 Letter to the Chairman, Senate Committee on Governmental Affairs and House Committee on Government Operations, GAO/OCG-90-1, Jan.
Page 6 - ... high risk," given its deteriorating financial condition and the long-term vulnerabilities of the program." In fiscal year 2004, PBGC's single-employer pension insurance program incurred a net loss of $ 12.1 billion and its accumulated deficit increased to $23.3 billion, up from $11.2 billion a year earlier. Furthermore, PBGC estimated that total underfunding in single-employer plans exceeded $450 billion, as of the end of fiscal year 2004.
Page 5 - Currently, plan sponsors pay a flat-rate premium of $19 per participant per year; in addition, some plan sponsors pay a variable-rate premium, which was added in 1987, to provide an incentive for sponsors to better fund their plans. For each $1,000 of unfunded vested benefits, plan sponsors pay a premium of $9. In fiscal year 2004, PBGC received nearly $1.5 billion in premiums, including more than $800 million in variable rate premiums, but paid out more than $3 billion in benefits to plan participants...
Page 19 - SAR summarizes the plan's financial status based on information that the plan administrator provides to the Department of Labor on its annual Form 5500. This document must generally be provided no later than nine months after the close of the plan year. *For example, a plan that allows...
Page 31 - Barbara D. Bovbjerg. Director Education, Workforce, and Income Security Issues US Government Accountability Office Washington, DC 20548 Dear Ms.

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