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Because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. A Look at Our Future: Retirement Income Security and the PBGC: National Academy of Social Insurance Policy Research Conference: The Honorable David M. Walker: Comptroller General of the United States: January 20, 2006: Key Elements for Economic Security in Retirement: Adequate retirement income: * Social Security; * Pensions; * Savings; * Earnings from continued employment (e.g., part-time). Affordable health care: * Medicare; * Retiree health care. Long-term care (a hybrid). Major Players: * Employers; * Government; * Individuals; * Family; * Community. Personal Saving Rate Has Declined: [See PDF for image] --graphic text: Line graph with 45 items. Percent of disposable personal income: Year: 1960; Personal saving rate: 7.3%. Year: 1961; Personal saving rate: 8.4%. Year: 1962; Personal saving rate: 8.3%. Year: 1963; Personal saving rate: 7.8%. Year: 1964; Personal saving rate: 8.8%. Year: 1965; Personal saving rate: 8.6%. Year: 1966; Personal saving rate: 8.3%. Year: 1967; Personal saving rate: 9.5%. Year: 1968; Personal saving rate: 8.4%. Year: 1969; Personal saving rate: 7.8%. Year: 1970; Personal saving rate: 9.4%. Year: 1971; Personal saving rate: 10.1%. Year: 1972; Personal saving rate: 8.9%. Year: 1973; Personal saving rate: 10.5%. Year: 1974; Personal saving rate: 10.6%. Year: 1975; Personal saving rate: 10.6%. Year: 1976; Personal saving rate: 9.4%. Year: 1977; Personal saving rate: 8.7%. Year: 1978; Personal saving rate: 8.9%. Year: 1979; Personal saving rate: 8.9%. Year: 1980; Personal saving rate: 10%. Year: 1981; Personal saving rate: 10.9%. Year: 1982; Personal saving rate: 11.2%. Year: 1983; Personal saving rate: 9%. Year: 1984; Personal saving rate: 10.8%. Year: 1985; Personal saving rate: 9%. Year: 1986; Personal saving rate: 8.2%. Year: 1987; Personal saving rate: 7%. Year: 1988; Personal saving rate: 7.3%. Year: 1989; Personal saving rate: 7.1%. Year: 1990; Personal saving rate: 7%. Year: 1991; Personal saving rate: 7.3%. Year: 1992; Personal saving rate: 7.7%. Year: 1993; Personal saving rate: 5.8%. Year: 1994; Personal saving rate: 4.8%. Year: 1995; Personal saving rate: 4.6%. Year: 1996; Personal saving rate: 4%. Year: 1997; Personal saving rate: 3.6%. Year: 1998; Personal saving rate: 4.3%. Year: 1999; Personal saving rate: 2.4%. Year: 2000; Personal saving rate: 2.3%. Year: 2001; Personal saving rate: 1.8%. Year: 2002; Personal saving rate: 2%. Year: 2003; Personal saving rate: 1.4%. Year: 2004; Personal saving rate: 1.2%. Source: Bureau of Economic Analysis, Department of Commerce. [End of figure] Annual Saving Required for a 35-Year Old, with Social Security: [See PDF for image] --graphic text: Line graph with two lines with nine items each. Retirement Age: 62; Required Contribution: Percentage of Gross Income: Male: 11.12%; Required Contribution: Percentage of Gross Income: Female: 12.09%. Retirement Age: 63; Required Contribution: Percentage of Gross Income: Male: 10.07%; Required Contribution: Percentage of Gross Income: Female: 10.97%. Retirement Age: 64; Required Contribution: Percentage of Gross Income: Male: 9.08%; Required Contribution: Percentage of Gross Income: Female: 9.93%. Retirement Age: 65; Required Contribution: Percentage of Gross Income: Male: 8.01%; Required Contribution: Percentage of Gross Income: Female: 8.79%. Retirement Age: 66; Required Contribution: Percentage of Gross Income: Male: 7.01%; Required Contribution: Percentage of Gross Income: Female: 7.72%. Retirement Age: 67; Required Contribution: Percentage of Gross Income: Male: 6.06%; Required Contribution: Percentage of Gross Income: Female: 6.69%. Retirement Age: 68; Required Contribution: Percentage of Gross Income: Male: 5.10%; Required Contribution: Percentage of Gross Income: Female: 5.66%. Retirement Age: 69; Required Contribution: Percentage of Gross Income: Male: 4.20%; Required Contribution: Percentage of Gross Income: Female: 4.67%. Retirement Age: 70; Required Contribution: Percentage of Gross Income: Male: 3.34%; Required Contribution: Percentage of Gross Income: Female: 3.72%. Source: GAO analysis, based on Social Security Administration data. Note: The chart shows the percentage of gross salary 35-year old male and female earning an average wage’ in 2005 would need to withhold so that the individual would accumulate funds sufficient, along with scheduled social security benefits, to provide retirement income equal to 75% of his or her pre-retirement income. The projections are based on economic assumptions from the 2005 Social Security Trustees Report for inflation (2.8%), real wage growth (1.1%), real interest rate (3%), and nominal interest rate (5.8%). [End of figure] Pension System Faces Variety of Challenges: * Significant coverage gaps and pre-retirement leakage; * Long term decline in the number of DB plans and active participants and change in the nature of DB plans; * Recent DB freezes and retiree health plan limitations are likely to accelerate due to prospective changes in current accounting for pension and post-employment benefits; * Recent and prospective large plan terminations by bankrupt sponsors have placed Pension Benefit Guaranty Corporation (PBGC), the federal agency insuring benefits, in financial jeopardy: - Stock market, interest rate declines this decade have worsened overall plan funding; - Demographics, global competition (steel, auto), industry deregulation restructuring (airlines) have contributed to both plan and corporate weakness; * Plan funding rules have proven to be inadequate; * Certain PBGC premium insurance issues need to be reviewed; * Selected other issues also require attention (e.g., lump sums, bankruptcy laws). Total Underfunding among All PBGC-Insured Single-Employer DB Plans: [See PDF for image] --graphic text: Bar graph with thirteen items. Dollars in billions. Year: 1993; Total underfunding among all PBGC-insured single-employer DB plans: $109.3. Year: 1994; Total underfunding among all PBGC-insured single-employer DB plans: $61.7. Year: 1995; Total underfunding among all PBGC-insured single-employer DB plans: $94.5. Year: 1996; Total underfunding among all PBGC-insured single-employer DB plans: $99.6. Year: 1997; Total underfunding among all PBGC-insured single-employer DB plans: $87.8. Year: 1998; Total underfunding among all PBGC-insured single-employer DB plans: $104.7. Year: 1999; Total underfunding among all PBGC-insured single-employer DB plans: $22.8. Year: 2000; Total underfunding among all PBGC-insured single-employer DB plans: $39.4. Year: 2001; Total underfunding among all PBGC-insured single-employer DB plans: $163.9. Year: 2002; Total underfunding among all PBGC-insured single-employer DB plans: $400. Year: 2003; Total underfunding among all PBGC-insured single-employer DB plans: $450. Year: 2004; Total underfunding among all PBGC-insured single-employer DB plans: $450. Year: 2005; Total underfunding among all PBGC-insured single-employer DB plans: $450. Source: Pension Benefit Guaranty Corporation. Note: Totals include data for single-employer plans that are speculatively rated and considered “reasonably possible” for termination. 2005 data are estimates as of September 30, 2005. [End of figure] PBGC's Net Accumulated Deficit for Single-Employer Plans Was Nearly $23 Billion in 2005: [See PDF for image] –graphic text: Line graph with two lines with 26 items each. Dollars in billions: Year: 1980; Accumulated surplus/deficit: -$0.10; Annual net gain/loss: -$0.09. Year: 1981; Accumulated surplus/deficit: -$0.19; Annual net gain/loss: -$0.14. Year: 1982; Accumulated surplus/deficit: -$0.33; Annual net gain/loss: -$0.19. Year: 1983; Accumulated surplus/deficit: -$0.52; Annual net gain/loss: -$0.06. Year: 1984; Accumulated surplus/deficit: -$0.46; Annual net gain/loss: -$0.86. Year: 1985; Accumulated surplus/deficit: -$1.33; Annual net gain/loss: -$0.70. Year: 1986; Accumulated surplus/deficit: -$2.03; Annual net gain/loss: $0.48. Year: 1987; Accumulated surplus/deficit: -$1.55; Annual net gain/loss: $0.48. Year: 1988; Accumulated surplus/deficit: -$1.54; Annual net gain/loss: $0.01. Year: 1989; Accumulated surplus/deficit: -$1.12; Annual net gain/loss: $0.42. Year: 1990; Accumulated surplus/deficit: -$1.91; Annual net gain/loss: -$0.79. Year: 1991; Accumulated surplus/deficit: -$2.50; Annual net gain/loss: -$0.59. Year: 1992; Accumulated surplus/deficit: -$2.74; Annual net gain/loss: -$0.23. Year: 1993; Accumulated surplus/deficit: -$2.90; Annual net gain/loss: -$0.16. Year: 1994; Accumulated surplus/deficit: -$1.24; Annual net gain/loss: $1.66. Year: 1995; Accumulated surplus/deficit: -$0.32; Annual net gain/loss: $0.93. Year: 1996; Accumulated surplus/deficit: $0.87; Annual net gain/loss: $1.18. Year: 1997; Accumulated surplus/deficit: $3.48; Annual net gain/loss: $2.61. Year: 1998; Accumulated surplus/deficit: $5.01; Annual net gain/loss: $1.53. Year: 1999; Accumulated surplus/deficit: $7.04; Annual net gain/loss: $2.03. Year: 2000; Accumulated surplus/deficit: $9.70; Annual net gain/loss: $2.67. Year: 2001; Accumulated surplus/deficit: $7.73; Annual net gain/loss: -$1.97. Year: 2002; Accumulated surplus/deficit: -$3.64; Annual net gain/loss: -$11.37. Year: 2003; Accumulated surplus/deficit: -$11.24; Annual net gain/loss: -$7.60. Year: 2004; Accumulated surplus/deficit: -$23.30; Annual net gain/loss: -$12.06. Year: 2005; Accumulated surplus/deficit: -$22.80; Annual net gain/loss: $0.56. Source: Pension Benefit Guaranty Corporation. [End of figure] PBGC Claims and Exposures by Principle Industry Category: [See PDF for image] –graphic text: Two pie charts with three items each. PBGC Claims by Industry, FY 1975-2005: Total = $31.7 billion. Manufacturing (e.g. steel, heavy equipment): 52%; Transportation (e.g. airlines): 40%; Other (e.g. construction, services): 8%. Reasonably Possible Exposure, FY 2005: Total = $108 billion. Manufacturing (e.g. steel, heavy equipment): 66%; Transportation (e.g. airlines): 16%; Other (e.g. construction, services): 18%. Source: Pension Benefit Guaranty Corporation. PBGC data for claims based on preliminary data. [End of figure] Industry Claims and Exposures: Common Elements: * Globalization; * Deregulation; * Legacy Costs. Several Reforms Might Improve Plan Funding and Reduce the Risks to PBGC’s Long-term Viability: * Strengthen funding rules applicable to poorly funded plans; * Consider additional tax deductible funding flexibility; * Limit lump sums in underfunded plans; * Modify program guarantees (e.g., phase-in rules); * Raise and modify pension premiums (e.g., nature of risk related premiums); * Eliminate floor/offset arrangements with significant investment concentrations in employer securities; * Increase transparency of current plan funding information; * Modify bankruptcy laws; * Address issues surrounding certain hybrid plans (e.g., cash balance plans); * Consider whether to address industrial restructuring costs/losses differently than normal PBGC losses. [End of slide presentation]