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Pension guarantor: unprecedented deficit

Pension Benefit Guaranty Corp. faces $33.5 billion deficit. Congressional Committee for Aging investigates causes, including former director's relationship with big banks.

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By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- The Pension Benefit Guaranty Corp., which guarantees private pension payments for 44 million Americans, said on Wednesday that it faces a massive, unprecedented deficit.

The PBGC reported a $33.5 billion deficit for the first half of fiscal year 2009, a period that ended on March 31. This means the agency could have problems paying back pensioners in the event that their private plans fail.

The agency said the first half of the fiscal year added $22.5 billion to its prior deficit of $11 billion. The PBGC said it now faces the largest deficit since it was founded it 1974.

The issue will be taken up on Wednesday by the Senate's Special Committee on Aging. The hearing, beginning at 2 p.m. ET, will feature subpoenaed testimony from the former PBGC director Charles Millard, according to the agency.

The PBGC is investigating Millard's relationships with the three of its investment partners: Goldman Sachs (GS, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and BlackRock (BLK, Fortune 500).

In a written statement, PBGC acting director Vince Snowbarger blamed the deficit on "a drop in interest rates and by plan terminations, not by investment losses."

Snowbarger added that the agency has enough cash to pay out claims for "many years," but the deficit must be addressed "over the long term."

The agency said that as of April 30 its investment portfolio was comprised of about 30% equities, 68% bonds and 2% other investments, including private equity and real estate.

The greatest threat to the agency's financial security are pension plans paid into by the auto industry. PBCG noted that these pensions are underfunded by $77 billion, but said it could back $42 billion of that amount in the event of plan failures.  To top of page

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