Corporate Pension Policy and the Value of PBGC Insurance

This paper derives the value of PBGC pension insurance under two scenarios of interest. The first allows for voluntary plan termination, which appears to be legal under current statutes. In the second scenario, termination is prohibited unless the firm is bankrupt. Optimal pension funding strategy under each scenario is examined. Finally,empirical estimates of PBGC liabilities are calculated. These show that a small number of funds account for a large fraction of total prospective PBGC liabilities, that those total liabilities greatly exceed current PBGC reserves for plan terminations, and that PBGC liabilities could be substantially reduced by the prohibition of voluntary termination.

Guaranteed Trouble: The Economic Effects of the Pension Benefit Guaranty Corporation

This paper examines the economic rationale for, historical experience of, and current pressures facing the Pension Benefit Guaranty Corporation (PBGC). The PBGC is the government entity which partially insures participants in private-sector defined benefit pension plans against the loss of pension benefits in the event that the plan sponsor experiences financial distress and has an under-funded pension plan. The paper discusses three major flaws of the PBGC, namely, that the PBGC has: 1) failed to properly price insurance and thus encouraged excessive risk-taking by plan sponsors; 2) failed to promote adequate funding of pension obligations; and 3) failed to promote sufficient information disclosure to market participants. The paper then discusses potential ways to reform the PBGC so that it operates more in concert with basic economic principles.

Pension Benefit Guaranty Corporation (PBGC) Investment Policy: Issues for Congress

[Excerpt] The Pension Benefit Guaranty Corporation (PBGC) is a federal corporation established under Title IV of the Employee Retirement Income Security Act of 1974 (ERISA, P.L. 93-406). The PBGC insures private pension beneficiaries against the complete loss of accrued benefits if their defined benefit pension plan is terminated without adequate funding. The PBGC receives no appropriations from general revenue. Its operations are financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income from the assets in its trust fund, and recoveries from the companies formerly responsible for the trusteed plans. The PBGC insures the pension benefits of 44 million workers and retirees. In fiscal year 2007, the PBGC paid about $4.3 billion in benefits to almost 1.3 million workers whose pension plans had failed. The PBGC currently has a$14.1 billion deficit in assets necessary to satisfy all claims made through FY2007. Although, the PBGC’s liabilities are not explicitly backed by the full faith and credit of the federal government, should the agency become financially insolvent, the Congress could face political pressure to bail out the PBGC at taxpayer expense. As of September 30, 2007, the value of the PBGC’s total investments, including cash and investment income, was approximately $62.6 billion. Premium income is required by law to be invested in debt obligations guaranteed by the U.S. government. The assets from terminated plans and their sponsors are accounted for in a trust fund that was most recently valued at$48.1 billion. There are no statutory limitations on how PBGC can invest the assets in its trust fund. In February 2008, the PBGC announced that it had adopted a new investment policy aimed at generating higher investment returns. The new policy allocates 45% of the assets to fixed-income investments, 45% to equity investments and 10% to alternative investment classes, including real estate and private equity. The PBGC’s previous investment policy, adopted in 2004, set an equity investment target of 15% to 25%, with the remaining assets allocated primarily to fixed income investments. If the PBGC’s higher expected investment returns are accompanied by reduced risk – as the PBGC has asserted – then U.S. taxpayers, as the ultimate guarantors of PBGC insurance, will be better off. However, if the higher returns are accompanied by commensurately higher risk, then taxpayers are neither better nor worse off, because the PBGC’s true financial condition will not have changed. Taxpayers would be worse off under the new policy if higher investment returns forestall fundamental reforms in the pension insurance system – such as adopting risk-based premiums – that could result in improving the long-term financial condition of the agency. Taxpayers, who would benefit from reduced exposure to the risk of having to bail out the PBGC if fundamental reforms in PBGC financing and governance were enacted, will be worse off if the agency does not achieve the reduction in its deficit that it has predicted the new investment policy will attain

A Guide to Understanding the Pension Benefit Guaranty Corporation

Although the federal government\u27s Pension Benefit Guaranty Corporation (PBGC) has been providing pension insurance for nearly 30 years, the agency\u27s financial situation has been particularly volatile over the past decade and has deteriorated significantly during the past several years. At the end of 2000, the total value of assets held by PBGC exceeded the estimated present value of its liabilities by $10 billion. But by the end of 2004, the agency\u27s estimated liabilities were$23.5 billion more than the value of its assets. As attention focuses on that situation, the Congressional Budget Office (CBO) has prepared this paper, which aims to provide a basic understanding of federal pension insurance, the operations of PBGC, and the financial condition of and the outlook for the agency over the next 10 years. In accordance with CBO\u27s mandate to provide impartial analysis, the paper makes no recommendations

Can the Pension Benefit Guaranty Corporation Be Restored to Financial Health?

In 2003, the Bush administration made a proposal for reform to strengthen pension plan funding and the financial condition of the Pension Benefit Guaranty Corporation (PBGC). Various bills with the goal of reforming the PBGC were proposed in the 108th Congress but none were enacted into law. The doubling of the PBGC deficit from fiscal 2003 to fiscal 2004, has heightened awareness about the PBGC deficit situation. Congressional leaders from both parties have announced their intention to move aggressively on legislative solutions in the 109th Congress

The Pension Benefit Guaranty Corporation and Single-Employer Plan Terminations

[Excerpt] Recent high-profile terminations of defined benefit pension plans have focused attention on the process for terminating plans and the Pension Benefit Guaranty Corporation (PBGC). The Employee Retirement Income Security Act (ERISA) regulates plan terminations. It provides for three types of single-employer plan terminations — standard, distress, and involuntary — and imposes different responsibilities on the PBGC for each type. This report discusses ERISA’s procedures for terminating single-employer plans and the PBGC’s role in such terminations

The Financial Health of the Pension Guaranty Benefit Corporation (PBGC)

[Excerpt] The Pension Benefit Guaranty Corporation (PBGC) is a federal government agency created by the Employee Retirement Income Security Act of 1974 (ERISA) to protect the pensions of participants covered by most private sector, defined benefit pension plans. The PBGC receives no appropriated funds. The agency’s costs are offset by the assets of the plans that the PBGC takes over and premiums paid by the sponsors of covered pension plans. The premiums are established by Congress. The PBGC’s single-employer program posted an all-time high deficit of $23 billion in 2004; as of September 30, 2006, the deficit was$18 billion. The PBGC discloses an additional, off-balance sheet liability for reasonably possible terminations; as of September 30, 2006, it was $73 billion

Insolvency Insurance for Private Plans

This essay is about the use of narrative in video games, and the discussion surrounding it. For years ludologists (game researchers) and narratologists (narrativity researchers) have been arguing about how to analyze narrativity in games. While ludologists have chosen to see games as a product by itself, and therefore something to be analyzed separately, narratologists instead see games as a narrative medium alongside film, theater and books. This essay starts by taking a look at the arguments from both sides, and then introduces three questions regarding narrative in games, and how this phenomenon has changed over the past 13 years. To answer these questions, five case studies are carried out, analyzing games with the help of a new framework built on narrative theory. The essay’s conclusion then reveals how the development of game narrativity has progressed, and what this could mean for the future of narrative games