ARTICLES BY TOPIC ¦ PENSION BENEFIT GUARANTY CORP. (PBGC)



Letter to the Editor ¦ June 27, 1994
Actuary Says PBGC Figures Misleading

By Barry B. Burr

Public statements by officials of the Pension Benefit Guaranty Corp. that the deficit of the fund that insures single-employer pensions has worsened ''are totally contrary to data recently released in its 1993 annual financial report,'' said David Langer, a consulting actuary.

The PBGC's deficit in its single-employer fund actually dropped to $1.3 billion in 1993 from the previous year rather than rising to $2.9 billion as claimed by the government insurance corporation in its latest annual report, asserted the president of New York-based David Langer Co. in a statement.

Mr. Langer's research shows the PBGC in ''strong financial condition,'' contrary to the corporation's report.

The PBGC's ''spurious'' data ''places the Congress and the public at a serious disadvantage, relying as they do on the agency for meaningful financial data in attempting to evaluate the need for the complex protective legislative that the PBGC is now pressing Congress for adoption,'' he asserted in a statement.

In its 1993 report, the PBGC noted its single-employer fund deficit rose to $2.9 billion from $2.7 billion. But according to Mr. Langer, ''a careful reading of the annual report reveals that the deficit was actually only $1.7 billion - not $2.7 billion - in 1992 and dropped to $1.3 billion in 1993.''

"The critical difference stems from the inappropriate loading of PBGC's true deficit - its liabilities less its assets - by what it calls 'probable net claims,'*'' according to Mr. Langer.

"These amounted to $1 billion in 1992 and $1.6 billion in 1993.''

"Probable net claims are the PBGC's estimate of the claims it expects to emerge in the near future from the unfunded pension liabilities of troubled companies that it believes may go under,'' Mr. Langer said.

"But the use of such claims to augment the true deficit is not the practice of life and health insurers.

"Moreover, when it is done occasionally by property and casualty insurers, it is when future income from premiums and investments is expected to be low, which is obviously not the case with the PBGC, since it received nearly $2 billion from these sources in each of the last two years.''

Responding in a statement, Martin Slate, PBGC executive director, said: ''Mr. Langer is wrong. Generally accepted accounting principles require the inclusion of 'probable claims' in our deficit. The General Accounting Office confirmed validity of the deficit figure in its audit of PBGC's 1992 and 1993 financial statements.''

Based on his calculations, Mr. Langer said the PBGC's success in predicting probable net claims was only 17% in 1993, while it averaged just 29% for the four years ended in 1993.


© 2001 DAVID LANGER COMPANY, INC.