Is the PBGC Next?

[Andy the Actuary]

(Please move to another formum if better suited)

Mention the PBGC to the next 100 people you meet on the street. Probably 10 can tell you it’s a government agency. Of those 10 there may be one – and I emphasize that "one" may be an ambitious supposition – who can describe the PBGC’s who, what, when, where, why, and how with any confidence (I can’t). Yet, a blowup of PBGC could drive the financial institution bailouts to the back page of the Wall Street Journal.

In the pre-financial-explosion days, the PBGC would publish its list of 50 pension plans that posed the greatest financial exposure to the PBGC. In September 2007, The PBGC announced that with the enforcement tools PPA provided to keep pension plans better funded, the annual list of 50 companies with the largest pension underfunding is no longer needed. These tools include PPA possible accelerated funding and more employee disclosure and annual reporting to government. With all this protection, however, the endangered species list seems to have slipped away from public domain viewing.

Who are they?

I sense the airlines are stacked up like dominoes just waiting to fall. The US auto giants may not be too far behind. What is the financial impact on the PBGC if there is a run on the bank? Will the US be forced to enter Weimar Republic mode and set the money printing presses wild to stay afloat should such PBGC financial catastrophe arise?

Comment would be appreciated by anyone who has waded through the morass of PBGC annual and actuarial reports and can lend any understanding.

[david rigby]

Here is rant:

http://benefitslink.com/boards/index.php?s...st&p=104851

[Andy the Actuary]

Here is rant:

http://benefitslink.com/boards/index.php?s...st&p=104851

Thank you. Quite the thread; quite the needle.

[GBurns]

Andy

What a way to destroy a thinking person's weekend.

There probably were some people who were looking forward to having the week get off to a calm start hoping that any G-20 action would help. Here comes Andy blindsiding everyone by pointing out the elephant that was standing in the corner getting ready to charge the room.

The PBGC failure would probably be more catastrophic than anything else so far.

I wonder if there was any damage caused by any of the recent failures. Any would certainly put them close to the edge.

[Andy the Actuary]

Andy

What a way to destroy a thinking person's weekend.

There probably were some people who were looking forward to having the week get off to a calm start hoping that any G-20 action would help. Here comes Andy blindsiding everyone by pointing out the elephant that was standing in the corner getting ready to charge the room.

The PBGC failure would probably be more catastrophic than anything else so far.

I wonder if there was any damage caused by any of the recent failures. Any would certainly put them close to the edge.

Yes, indeedy. I am a bummer.

[tymesup]

Andy

What a way to destroy a thinking person's weekend.

There probably were some people who were looking forward to having the week get off to a calm start hoping that any G-20 action would help. Here comes Andy blindsiding everyone by pointing out the elephant that was standing in the corner getting ready to charge the room.

The PBGC failure would probably be more catastrophic than anything else so far.

I wonder if there was any damage caused by any of the recent failures. Any would certainly put them close to the edge.

Yes, indeedy. I am a bummer.

Paradoxically, your avatar appears quite cheerful.

[Andy the Actuary]

As I was soapboxing . . .

Detroit_Free_Press_12_14_2008.pdf

[Don Levit]

Andy:

AS you probably know, most of the balance sheet items for the federal government are due to cash-based accounting.

Therefore, as a recent GAO report stated, "Insurance programs with long-term commitments, such as the PBGC, may distort the budget's fiscal balance by looking like revenue generators when premiums exceed benefits and administrative expenses, because the program's long-term expected costs are not reported.

Generally, cost is only recognized in the budget when claims are paid rather than when the commitment is made.

PBGC's current cash collections can exceed current cash payments, regardless of the expected long-term cost to the government."

For the full report, go to:

http://www.gao.gov/new.items/d081162t.pdf.

Don Levit

[david rigby]

Thanks for the background, Don.

IMHO, this is more proof that the PBGC's existence (as well as stucture) is counterproductive to its (alleged) purpose.

[Guest mjb]

Andy:

AS you probably know, most of the balance sheet items for the federal government are due to cash-based accounting.

Therefore, as a recent GAO report stated, "Insurance programs with long-term commitments, such as the PBGC, may distort the budget's fiscal balance by looking like revenue generators when premiums exceed benefits and administrative expenses, because the program's long-term expected costs are not reported.

Generally, cost is only recognized in the budget when claims are paid rather than when the commitment is made.

PBGC's current cash collections can exceed current cash payments, regardless of the expected long-term cost to the government."

For the full report, go to:

http://www.gao.gov/new.items/d081162t.pdf.

Don Levit

Isnt that also true for SS which has a $4T liability? Given the fact that the federal deficit for the 2009FY including TARP, without any new stimulus plan is now over $1T, how significant is any PBGC deficit to the federal deficit? And of course this number ignores the additional amounts that the the feds has guaranteed to financial institutions- AIG 150B, Fannie/ Freddie 200B, Bear Stearns 29B, etc.

The PBGC deficit is a drop in the bucket compared to other liabilities that have been/will be assumed by Bail Out nation.

[Don Levit]

mjb:

Your concerns are certainly appropriate.

Yes, Social Security and Medicare are accounted for on a cash basis, similar to the PBGC.

"According to the FASAB, the accounting advisor for the federal government, in a paper entitled Accounting For Social Insurance, Revised," written 2 years ago, the present view of those 2 benefits is that "expenses and liabilities are incurred for social insurance when the amount of benefit is due and payable. Hence, benefits beyond the due and payable amount are not present obligations of the Government and should not be expenses or liabilities in the current period."

It further states "The liability for all social benefits should be recognized only when all eligibility criteria have been satisfied, which means that the liability generally equals the next payment."

And, "The U.S. Supreme Court has affirmed Congress' right to modify future federal benefits in any manner at any time. So, because these future benefits can be modified or eliminated unilaterally by the entity which would pay them, there is no legal obligation for future social insurance benefits beyond amounts that are due and payable."

Don Levit