Pension agency funding deficit improves

NEW YORK (CNNMoney.com) -- The agency that guarantees workers' private-sector pensions is now in better financial shape than it was last year.

On Wednesday, the Pension Benefit Guaranty Corp. reported a $4.7 billion decline in its funding deficit for single-employer plans: from $22.8 billion last year to $18.1 billion this year.

Its single-employer program currently has $60 billion in assets and projected liabilities of $78.1 billion.

The PBGC insures private-sector pensions so that if a company goes bankrupt or otherwise becomes unable to pay the pension benefits owed to participants the PBGC takes over the plan and pays the benefits up to a cap.

"Our current assets can cover pension payments coming due for a number of years into the future, and our exposure to additional losses has declined," said Vince Snowbarger, PBGC's interim director, in a statement.

The agency said the reduction was largely attributable to the relief provisions in the Pension Protection Act for airlines with pensions at risk. That law imposes a higher funding standard on companies with pension plans that are less than 100 percent funded long term.

Airlines were granted as long as 17 years to meet that higher funding standard, provided that they freeze their plans to new beneficiaries. A freeze effectively lowers a plan's long-term liabilities and makes it less likely to need PBGC to come to the rescue.

The agency said that of the pension plans removed from its list of plans most likely to fold, five were a result of the airline relief provisions.

It also noted that higher interest rates and improved credit ratings contributed to the reduced risk of claims against the agency.

In 2006, the PBGC paid $4.1 billion in pension benefits to 1.3 million workers and retirees.

It currently guarantees the pensions of 44 million workers and retirees in more than 30,000 private-sector pension plans.

The traditional defined-benefit pension has been replaced by the defined-contribution plan (e.g., 401[k]s and 403[b]s) as the main vehicle for their retirement savings.

In the past few years, tens of thousands of workers have learned that their companies are freezing their pension plans, meaning that workers will be entitled to the benefits they have accrued to date, but no further benefits will accrue. Translation: they will need to save more to make up for lost accruals.

More than 350 S&P 500 companies still have pension plans. And, thanks to the recent rise in interest rates and stock prices, about one-half of those plans are at least fully funded, according to Ron Gebhardtsbauer, senior pension fellow at the American Academy of Actuaries.

However, some pension experts predict that upcoming changes in accounting rules may push companies with otherwise well funded plans to consider terminating their plans. When a plan is terminated, the existing assets are converted into annuities for the plan participants, and no further benefits accrue.

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