Pension Insurance Agency Sees Smaller Annual Deficit

The U.S. agency that ensures corporate pensions reported Monday that its annual deficit shrank nearly $3 billion, but said it stepped up the monitoring of struggling U.S. companies, including automakers.

Charles Millard, director of the Pension Benefit Guaranty Corp (PBGC), said in an interview that officials are taking a more aggressive approach toward accumulating information about plans sooner than companies normally would be required to report it.

Millard said agency officials have focused on a number of struggling companies and pension insurers have been in daily contact with senior leaders at General Motors , Ford Motor and Chrysler. The PBGC wants to ensure that pension information is updated and accurate.

The agency did not say what specific information it is reviewing.

Millard, who credited more aggressive monitoring with helping to reduce its deficit, told Congress in October that GM's plans were in reasonably good health. He would not discuss plans at Ford or Chrysler, controlled by Cerberus Capital Management LP.

GM confirmed its plans were overfunded and told analysts in recent weeks it did not anticipate having to make contributions for the next few years. Chrysler would not discuss its pensions, but a Ford spokeswoman said its plans were overfunded at the start of the year.

Possible failure of one or more of the Detroit carmakers is a growing concern in Detroit and Washington. GM and Chrysler have said they need a federal bailout to survive. GM says it could run out of cash in early 2009 without a bailout.

But all three Detroit companies reject the option of bankruptcy, which is the traditional venue for turning pensions over to the government.

All three companies maintain traditional pensions, or defined benefit plans, which are company sponsored and pay retirees a fixed benefit for life.

DB plans are generous but also a fading fixture of corporate America.

These plans have fast given way to 401(k) and other cash options that are mainly employee financed, riskier and not insured by the government.

The PBGC said its deficit for the 2008 fiscal year that ended Sept. 30, was nearly $11.2 billion, compared with a $14 billion shortfall in the previous year. The agency reports $62.9 billion in pension plan assets under its control compared with $74.1 billion in liabilities.

Much of the balance sheet reflects traditional single-employer plans.

Millard said the agency has enough money to pay long-term benefits despite ongoing economic and market turmoil and is not likely to be harmed so long as the plans it assumes from failed or bankrupt companies are well funded.

Premiums paid by companies, pension assets and investment returns fund the agency's pension insurance.

After several years of growing deficits largely due to a spike in pension defaults by airlines and steel companies, the PBGC has narrowed its shortfall more recently.

Investment yields have been stronger and companies must, by law, pay closer attention to contribution requirements.

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