Summary: Testimony was given on GAO views of the financial condition of the single employer pension insurance program and a presidential budget request that the current rate for each participant be increased to $7.50 retroactive to January 1, 1985. The Pension Benefit Guaranty Corporation (PBGC) administers the self-financing program which finances insurance claims for guaranteed benefits not funded by sponsoring employers. Since its inception, the program has operated at a deficit because claims have exceeded premiums. The PBGC expected claims and participant base are difficult to predict because of uncertainties about the relationship between future events and the program's past experience. Although the program's actual claims have substantially exceeded the amounts that PBGC had used to estimate the premium rate needed, the growth in the program's participant base has slowed in recent years. In addition, GAO has not been able to determine whether the program's financial statements are presented fairly because of major accounting and internal control weaknesses. PBGC estimates that a $7.50 premium will cover annual costs and retire the program's deficit over the next 15 years. By contrast, GAO estimates that a rate of between $5.50 and $11 will be needed and, to retire the deficit over 5 rather than 15 years, a $9 rate will be needed. GAO believes that the rate increase is needed to put the insurance program on a sounder financial basis and that the deficit should be retired sooner than in 15 years in order to avoid shifting program costs to future payers. Therefore, GAO believes that the requested $7.50 premium rate is the lowest that should be provided.
