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Wednesday, July 22, 2009

PBGC To Assume Delphi Pension Plans

by Calculated Risk on 7/22/2009 11:45:00 AM

From the Pension Benefit Guaranty Corporation (PBGC): PBGC To Assume Delphi Pension Plans

The Pension Benefit Guaranty Corporation today announced it will assume responsibility for the pension plans of 70,000 workers and retirees of Delphi Corp., the nation’s largest producer of automotive parts.
The PBGC is a federal corporation that insures pension plans. It is funded by insurance premiums that all insured plans pay. When a plan fails, the PBGC takes over all the assets and liabilities - although the pensions are limited, and retirees may get much less from the PBGC.

Since the assets are acquired immediately, but the liabilities are paid out over time, the PBGC has plenty of assets to pay current claims - but faces a long term deficit.

From the PBGC in May: PBGC Deficit Climbs to $33.5 Billion at Mid-Year, Snowbarger to Tell Senate Panel
The Pension Benefit Guaranty Corporation posted a $33.5 billion deficit for the first half of fiscal year 2009, PBGC Acting Director Vince Snowbarger will tell the Senate Special Committee on Aging at a hearing today. Based on unaudited financial numbers as of March 31, the deficit represents an increase over FY 2008’s $11 billion shortfall, and is the largest in the agency’s 35-year history.

“The increase in the PBGC’s deficit is driven primarily by a drop in interest rates and by plan terminations, not by investment losses,” Snowbarger states in his written testimony. “The PBGC has sufficient funds to meet its benefit obligations for many years because benefits are paid monthly over the lifetimes of beneficiaries, not as lump sums. Nevertheless, over the long term, the deficit must be addressed.”

The $22.5 billion deficit increase was due primarily to about $11 billion in completed and probable pension plan terminations; about $7 billion resulting from a decrease in the interest factor used to value liabilities; about $3 billion in investment losses; and about $2 billion in actuarial charges.
This is a bailout in the making. And as Atrios commented this morning: "It wouldn't surprise me if the PBGC starts getting as hungry as the FDIC."