Last week, the American Academy of Actuaries released theresults of astudy on the funding deficit for the single-employer pensionprogram of the Pension Benefit Guaranty Corporation (PBGC). ThePBGC, which protects pension plan participants in the event of a plan sponsor'sfailure, is funded by the premiums plan sponsors pay. Theorganization reported a deficit of $29.1 billion for the fiscalyear ended September 30, 2012. (The multi-employer program reportedan additional deficit of $5.2 billion, which was not considered inthe American Academy of Actuaries study.)

The single-employer program's deficit is the difference betweenits assets and liabilities; the liabilities consist primarily ofthe present value of pension benefits that the PBGC owesparticipants in defined-benefit plans it has taken over. Somecritics have argued that the interest rate assumptions the PBGCuses in calculating these benefits are more conservative than theassumptions most corporate plans use. They point out that the PBGChas incentive to overstate its liabilities as it seeks betterfunding. However, the American Academy of Actuaries study foundthat “the PBGC's methods and assumptions produce a reasonablerepresentation of its current obligation and deficit.”

According to the study, PBGC's current assets are sufficient topay benefits for many years, so despite the funding deficit, theorganization is not currently in crisis. However, even if interestrate assumptions were changed significantly, the PBGC would stillbe running a deficit. Ultimately, the study urges, “priority shouldbe placed on developing a premium structure that reflects the riskthat plans pose to the system with respect to futureterminations.”