The Troubled U.S. Pension Benefit Guaranty Corporation
The Pension Benefit Guaranty Corporation (PBGC) was created by Congress in 1974 to insure all private-sector pensions against employer bankruptcy and underfunding. By 2006, the PBGC was responsible for insuring pensions for 44 million working and retired Americans.
Like many of the defined contribution plans it was designed to oversee, however, the PBGC is in financial difficulty. Many firms that provide pension plans are in slow-growth “old economy” industries, such as steel and automotive. Others, like airlines, are in poor financial health. As a result of these and other factors, PBGC liabilities are predicted to grow significantly in the coming years.
A 2008 study published in the Journal of Economic Perspectives, “Guaranteed Trouble: The Economic Effects of the Pension Benefit Guaranty Corporation,” examines the factors that have hurt the PBGC and recommends solutions. Overall, the author found that the PBGC failed to properly price insurance, promote adequate funding of pension obligations, and promote sufficient information disclosure to plan participants and investors.
- Pricing: The PBGC was intended to be a self-funding government agency, but Congress retains the authority to set premiums. Approved rate increases have been inadequate and fail to factor in recipients’ credit worthiness.
- Funding: Limited penalties exist for firms that underfund and no penalties (such as risk-adjusted premiums) exist for investing pension assets in riskier portfolios.
- Disclosure: Updates provided to the PBGC by at-risk firms are kept confidential. All other firms have lengthy filing periods — more than two years -- rendering plan updates obsolete.
Tags: aging, retirement, Social Security
Note to instructor: The suggested assignments are designed for flexibility. They can be used in whole or part and can be adapted to a particular task -- for example, the newswriting assignments could be applied to the writing of the headline, the lead, the nut graph or the full story. Material from the assignments could also be combined with other material, for example, in the writing of a background, feature or local-angle story.
- Summarize the study in fewer than 40 words.
- Express the study's key term(s) in language a lay audience can understand.
- Evaluate the study's limitations. (For example: Do the results conflict with those of other reliable studies? Are there weaknesses in the study's data or research design?)
Read the issue-related New York Times article "As Payouts Rise, New Tactics by the U.S. Pension Insurer."
- If you were to rewrite the article based on knowledge of the study, what key changes would you make?
- Write a lead (or headline or nut graph) based on the study.
- Spend 60 minutes exploring the issue by accessing sources of information other than the study. Write a lead (or headline or nut graph) based on the study but informed by the new information. Does the new information significantly change what one would write based on the study alone?
- Interview two sources with a stake in or knowledge of the issue. Be prepared to provide them with a short summary of the study in order to get their response to it. Write a 400-word article about the study incorporating material from the interviews.
- Spend additional time exploring the issue and then write a 1,200-word background article, focusing on major aspects of the issue.