Vincent Snowbarger, Acting Director of the Pension Benefit Guaranty Corporation testified before the Senate Special Committee on Aging. What follows are a few selected paragraphs:

"Most companies that sponsor DB plans should be capable of meeting their pension obligations to their workers and thus are not expected to make a claim against the insurance program or put retiree and worker pensions at risk. But the amount of underfunding in pension plans sponsored by financially weaker employers is very substantial. Pension underfunding in non-investment grade companies is classified under generally accepted accounting standards as “reasonably possible” of termination and is required to be reported in the notes to PBGC’s financial statements.

"At the end of FY 2008, there was substantial reasonably possible exposure in plans of companies in airlines, autos, and steel, among other sectors. Subsequently, declines in the stock market have reduced the value of assets held by DB plans and have caused the unfunded liabilities of most DB pension plans to increase substantially.

"PBGC is closely monitoring companies in the auto manufacturing and auto supply industries, which are in a period of significant financial distress. PBGC estimates that pension underfunding in the auto sector as a whole is $77 billion (calculated on a plan termination basis). Of this amount, PBGC estimates unfunded guaranteed benefits total approximately $42 billion. Thus, participants in auto sector pension plans and the other stakeholders of the pension insurance program are at substantial risk of loss if these plans are terminated.

"PBGC also faces increased exposure from weak companies across all sectors of the economy, including retail, financial services, and health care. While PBGC hopes that companies that enter bankruptcy will emerge from bankruptcy with their pension plans ongoing, that outcome in part depends on the overall strength of the economy."

The acting director's testimony includes background that outlines the original need for the agency and a bit of its history: "The need for a federal pension safety net became starkly evident when, at the end of 1963, the Studebaker Corporation, then the nation’s oldest major automobile manufacturer, closed its U.S. operations and terminated its pension plan. About 4,000 workers lost the bulk of their pensions, receiving only fifteen cents on the dollar of vested benefits. At an average age of 52, these Studebaker employees had worked for the company an average of 23 years.

"In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) which, among other pension protections, created PBGC to insure pensions earned by American workers under private-sector defined benefit plans. PBGC now insures almost 44 million workers, retirees, and beneficiaries in about 30,000 DB plans. When a plan terminates in an underfunded condition – because the employer responsible for the plan can no longer fund the promised benefits – PBGC takes over the plan as trustee and pays benefits to the full extent permitted by law."

The entire testimony is available at the PBGC site