The Pension Benefit Guaranty Corporation paid $5.7 billion to more than 800,000 people in failed pension plans during fiscal year 2015, according to the agency’s annual report, which was released Tuesday. Retirees were quite pleased with service, giving PBGC customer satisfaction a score of 91, based on a survey of those who receive monthly benefits.
The multiemployer program reported a deficit of $52.3 billion. The nearly $10 billion increase from last fiscal year is due to a drop in interest factors and the addition of 17 plans that are “newly terminated or are projected to run out of money within the next 10 years,” PBGC said.
The risk of insolvency for the multiemployer program surpasses 50% by 2025, and increases to 90% by 2032, according to PBGC’s projections report. “The risk of insolvency decreased over the near term due primarily to the new multiemployer premium revenues enacted as part of” the Multiemployer Pension Reform Act of 2014, PBGC said. “The new law increased multiemployer plan premiums and provided new options for troubled multiemployer plans to avoid insolvency.”
The annual report does not “show any effect due to the use of those options,” as no plan has completed the process to utilize MPRA, PBGC said.
The multiemployer program — which insures roughly 1,400 plans and 10 million people — paid $103 million to 57 pension plans (54,000 retirees) in fiscal year 2015. That’s a $6 million increase from last fiscal year.
The single-employer deficit also rose, to $24.1 billion, up from $19.3 billion last year. As with multiemployer plans, a drop in interest factors also impacted single-employer plans, PBGC said. “Financial markets were flat,” the agency said during a media call. (Per stipulations of the call, the media was not permitted to cite specific sources and was asked to attribute all information to PBGC).
PBGC paid $5.6 billion to 826,000 participants in single-employer plans — a slight increase from $5.5 billion last year — and covered more than 25,000 addition people in single-employer plans in fiscal year 2015. The single-employer program did not have any large losses, thanks to an improving economy, PBGC said.
Premiums for single-employer plans are set to increase to $69 in 2017; $74 in 2018; and $80 in 2019 — more than twice the 2012 rate. The increases were included in the federal government’s budget, which President Obama signed into law earlier this month. “We did not ask for the premium increases that were recently enacted,” PBGC said.
Higher premiums will negatively impact the long-term future of pension plans, said Geoff Manville, a principal and leader of the government relations team at Mercer’s Washington Resource Group. “It’s extremely unfortunate that Congress raised premiums again,” he said. “It’s another disincentive to operate these plans.”
The premiums can only be used for PBGC programs. However, increases in premiums appear as general revenue as recorded by the Congressional Budget Office. This “double counting” error must be fixed, Manville said. “We have to work especially hard to change the budget rules in Congress,” he said.
Educating legislators about the impact increased premiums will have on pension plans is also needed, Manville said. While the number of plans has dropped, there are still plenty of people with DB plans and “we shouldn’t be doing things to put the benefits for those participants in jeopardy,” he said. One idea plan sponsors are discussing is basing future premium increases on certain metrics, such as the financial health of PBGC, Manville said.
Still, the pension community is encouraged about the future due to the appointment of new PBGC Director Tom Reeder, who took over last month. “We’re all optimistic about the prospects of putting together a better, more rational policy toward pension plans with Tom Reeder in place,” Manville said. “He’s been a friend to employee benefit plans for many years.”
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