Pension & Benefits News PBGC Annual Report shows serious deterioration of multiemployer program’s financial condition
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Thursday, December 19, 2019

PBGC Annual Report shows serious deterioration of multiemployer program’s financial condition

By Pension and Benefits Editorial Staff

The Pension Benefit Guaranty Corporation (PBGC) has released its Fiscal Year (FY) 2019 Annual Report, showing that the multiemployer insurance program has a record deficit of $65.2 billion at the end of FY 2019. The growth in the deficit for the PBGC’s multiemployer plan program from $53.9 billion at the end of FY 2018 was mostly due to lower interest rate factors, which increased the value of the PBGC’s benefit liabilities. The PBGC explains that the multiemployer insurance program is highly likely to become insolvent during FY 2025.

“The multiemployer pension system faces a crisis that threatens the retirement security of millions of American workers, retirees, and their families. Without reforms, PBGC’s Multiemployer Insurance Program will run out of money. That will leave about 1.5 million participants and beneficiaries in already-failing plans with much less than the PBGC’s guaranteed level of benefits. The alarm bells are ringing, and legislative changes are necessary,” said PBGC Director Gordon Hartogensis. “The Administration stands ready to work with Congress to protect retirees in multiemployer plans, prevent the collapse of the multiemployer pension system, save the PBGC backstop, and prevent this crisis from recurring in the future.”

However, there is good news about the PBGC single-employer insurance program. The financial condition of the program continues to improve, with a positive net position of $8.7 billion as of September 30, 2019. This increase from $2.4 billion at the end of FY 2018 is primarily due to premium and investment income, and a continued low level of losses from plan terminations.

The Agency protects the pension benefits of over 35 million Americans in private-sector pension plans and the PBGC is currently responsible for the benefits of about 1.5 million people in failed plans who otherwise might have lost their pensions.

Multiemployer program deficit increased. The PBGC multiemployer insurance program’s deficit of $65.2 billion reflects liabilities of $68 billion and assets of $2.9 billion as of September 30, 2019. The increased deficit results mostly from lower interest rate factors used to measure the value of the PBGC’s future payments to insolvent plans. The ongoing financial decline of a number of multiemployer plans newly classified as probable insolvencies because they either terminated or are expected to run out of money within the next decade also contributed to the program’s deterioration, according to the PBGC. These new liabilities for probable insolvencies were partially offset by plans that are no longer probable claims, the PBGC states.

During FY 2019, the Agency paid $160 million in financial assistance to 89 insolvent multiemployer pension plans, an increase from the previous year of $153 million paid to 81 plans. The PBGC expects that its obligations to provide financial assistance will increase rapidly in the coming years as more and larger multiemployer plans run out of money and need help to provide benefits at the guarantee level set be law. Without a change in law, the multiemployer plan program’s assets and future income are a small fraction of the amounts the PBGC will need to support the guaranteed benefits of participants in plans that are expected to become insolvent in the future, according to the PBGC.

Single-employer program continues to improve. The positive net position of $8.7 billion in the single-employer insurance program reflects the program’s assets of $128.1 billion and liabilities of $119.4 billion as of September 30, 2019, representing a net improvement of $6.2 billion during FY 2019. In FY 2019, the PBGC paid over $6 billion in benefits to more than 932,000 retirees.

The PBGC assumed responsibility during FY 2019 for 51 single-employer plans that terminated without enough money to provide all promised benefits. These plans cover more than 103,000 current and future retirees. The PBGC cautions that “[t]he improvement in the Single-Employer Program is consistent with PBGC’s recent projections, but the program remains exposed to a considerable amount of underfunding.”

Source: PBGC News Release No. 19-12.

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