The balance sheet for the Pension Benefit Guaranty Corporation’s (PBGC) single-employer plan moved into the black in the latest fiscal year (FY) to continue a trend of better results, but the multiemployer plan remains in deficit and at risk of insolvency in as few as 7 years, according to the agency’s FY 2018 Annual Report.
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In the report, released November 16, the single-employer program recorded an improvement of $13.4 billion during FY 2018, showing a positive net position of $2.4 billion as of September 30, swinging from a deficit of $10.9 billion at the end of FY 2017.
However, the multiemployer program continued to post a deficit, of $53.9 billion in the latest fiscal year, although it narrowed from $65 billion at the end of FY 2017. Despite this improvement, the multiemployer program “continues on the path toward insolvency, likely by the end of FY 2025,” the PBGC said in a press release.
“As more time passes, the changes required to prevent insolvency become more disruptive and painful for participants, plans, and employers,” PBGC Director Tom Reeder said in the annual report.
Higher interest rates drove the financial improvement in both programs, as they reduced the value of PBGC’s benefit liabilities. A strong economy and the absence of new large claims also contributed to the financial improvement, the agency’s annual report said.
Large Multiemployer Claims Seen
In the coming years, absent legislative changes, the PBGC said more and larger claims on the multiemployer program will lead to its insolvency. If the multiemployer program is allowed to become insolvent, the PBGC will only be able to pay a small fraction of guaranteed benefits for participants in failed multiemployer plans, it has said.
PBGC’s two pension insurance programs are designed to protect participants’ pension benefits when plans fail. But the programs differ significantly in the level of benefits guaranteed, the insurable event that triggers the guarantee, and the premiums paid by insured plans. By law, the two programs are operated and financed separately. Assets of one program may not be used to pay obligations of the other.
Consistent With Projections
The single-employer program had assets of $109.9 billion and liabilities of $107.5 billion as of September 30, 2018. The program’s improvement is consistent with PBGC’s recent projections, and was accelerated by the continued strong economy, lower-than-expected claims, and the higher interest rates, the agency said.
In FY 2018, the PBGC paid $5.8 billion in benefits to more than 861,000 retirees, about the same as last year. During the year, the agency said it became responsible for 58 single-employer plans that terminated without enough money to provide all promised benefits. These plans cover 28,000 current and future retirees.
The multiemployer program in the same period had liabilities of $56.2 billion and assets of $2.3 billion. This resulted in a deficit of $53.9 billion, narrowing from $65.1 billion last year. The $11 billion decrease in the deficit was caused mostly by higher interest-rate factors used to measure the value of PBGC’s future payments to insolvent plans.
More Multiemployer Plans Assisted
During FY2018, the agency provided $153 million in financial assistance to 81 insolvent multiemployer plans, up from the previous year’s payments of $141 million to 72 plans. In the future, the demand for PBGC financial assistance for multiemployer plans will increase rapidly as more and larger such plans run out of money and need help to provide benefits at the guaranteed levels set by law, the agency predicted.
Assuming no changes in law, the assets and future income of PBGC’s Multiemployer Program are only a small fraction of the amount the PBGC will need to support the guaranteed benefits of participants in plans that already are insolvent as well as ones expected to become insolvent during the next decade, it said.
The agency said it is using the “limited tools” it has to help troubled multiemployer plans. “This year, we issued guidance pertaining to multiemployer plans, such as withdrawal liability guidance [see September story] and a facilitated merger rule under the Multiemployer Pension Reform Act of 2014 [see June 2016 story], to improve the health of some multiemployer plans over the long term,” Reeder said in the report.
The PBGC is responsible for the benefits of about 1.5 million people in failed pension plans. It receives no taxpayer dollars; instead, its operations are financed by insurance premiums, investment income, and, for the single-employer program, assets and recoveries from failed plans of that type.
| Jane Meacham is the editor of BLR’s retirement plan compliance publications. She has nearly 30 years’ experience as a writer/editor of financial services news. |