PBGC Multiemployer Program to Become Insolvent by 2026

The Pension Benefit Guaranty Corporation’s (PBGC) Multiemployer Program is on track to run out of money by 2026, according the agency’s most recent annual projections report.

“The Multiemployer Program continues to report large deficits,” said the report, “which, without legislative changes, are expected to grow over time.”

The PBGC said its projections show the financial position in the Multiemployer Program declining from -$65.2 billion, the actual reported net position as of Sept. 30, 2019, to -$82.3 billion as of Sept. 30, 2029, representing a $17.1 billion decline over the 10-year projection period.

As dire as it sounds, it’s actually an improvement from last year’s report, which had forecast that the program would likely become insolvent by fiscal year 2025. The PBGC attributed the extra year of solvency to the recent enactment of the Bipartisan American Miners Act, which provides federal funding for the United Mine Workers Plan.

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Compared to projections reports of recent years, the PBGC says that the likelihood of insolvency during fiscal year 2024 is now “remote” and that there is now “a small chance of insolvency” during fiscal year 2025.

The PBGC’s Multiemployer Program covers an estimated 10.8 million participants in approximately 1,400 plans and is “under severe stress,” according to the report, which also said that there is currently “no scenario” in which the program remains solvent beyond fiscal 2027.

The PBGC said that 124 of the 1,400 multiemployer plans it covers have reported that they will run out of money within 20 years. These plans are deemed in “critical and declining” status under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code.

“Participants in insolvent plans face benefit reductions to the level guaranteed by PBGC upon plan insolvency,” said the PBGC in its report. “They also face an additional risk that PBGC’s multiemployer guarantee fund will run out of money to provide financial assistance, leaving PBGC unable to pay the current level of guarantees.”

The agency added that without legislation to reform the multiemployer pension system or to address the Multiemployer Program solvency crisis, the benefits of participants in insolvent multiemployer plans would be reduced to the level that can be supported by PBGC’s future premium income.

“Such reductions could result in some participants receiving a very small fraction of the benefits guaranteed by PBGC,” the report warned.

When a multiemployer plan becomes insolvent, the PBGC provides financial assistance to the plan in the form of loans to cover participant guaranteed benefits and plan administrative expenses. The agency said that only once it its history have the loans been repaid because the insolvent plans had not recovered and lacked any meaningful collateral to support the loans.

Meanwhile, the PBGC said the projections for its Single-Employer Program indicate a much more stable financial footing, with its net financial position growing steadily from $8.7 billion as of Sept. 30, 2019, to $46.3 billion at Sept. 30, 2029. It attributed the program’s financial improvement to lower-than-expected claims and increased premium collections.

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Tags: Insolvency, Multiemployer Pension Plans, PBGC, Pension Benefit Guaranty Corporation, projections report, Single-Employer Program

In two separate cases last week, the SEC settled charges against a movie financer for misappropriating millions of dollars from investors, and charged a movie producer and rapper/actor for their involvement in unregistered and fraudulent initial coin offerings (ICOs).

In the first case, the SEC settled charges against movie financier Remington Chase, the founder of Knightsbridge Entertainment, Inc. The SEC alleges Chase engaged in a fraudulent scheme in which he raised at least $62 million from the sale of Knightsbridge securities to approximately 100 investors. Chase promised investors their money would be used to fund motion picture operations, but the SEC alleges that he instead used the majority of investor funds for unrelated business activities and for his personal benefit and enjoyment.

According to the SEC’s complaint, Chase used at least $8.9 million of investor funds for his personal benefit, including almost $1.8 million in charges on his American Express card, more than $1.5 million in donations to the University of Southern California, and made cash withdrawals and wrote checks payable to himself totaling more than $1.3 million. He also allegedly used nearly $1 million of investor funds to buy several Tesla cars. The SEC alleges Knightsbridge, which ceased operations in 2018, used only about one-third of investor funds for providing post-production film financing to movie companies.

Without admitting or denying the allegations, Chase has consented to a permanent injunction barring him from violating the charged provisions, and he agreed to pay just over $8.9 million in disgorgement fees plus more than $1 million in prejudgment interest and a civil penalty of nearly $200,000. The settlement is subject to court approval.

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In the second Hollywood-related case, the SEC charged five Atlanta-based individuals, including film producer Ryan Felton and Clifford Harris, Jr., a rapper and actor better known as T.I. or Tip, and three others who each promoted one of Felton’s two unregistered and fraudulent ICOs. The SEC also charged two companies controlled by Felton, FLiK and CoinSpark , which conducted the ICOs. Everyone charged by the SEC, except for Felton, have agreed to settle the charges against them.

According to the SEC’s complaint, Felton promised to build a digital streaming platform for FLiK and a digital-asset trading platform for CoinSpark. But instead, Felton allegedly misappropriated the funds raised in the ICOs and secretly transferred FLiK tokens to himself and sold them into the market, reaping an additional $2.2 million in profits.

The SEC alleges Felton engaged in fraudulent and unregistered offerings of digital asset securities between August 2017 and June 2018, and took in more than $3 million in illegal profits from investors.

“Despite promising to use the funds raised from investors to build the FLiK and CoinSpark online platforms, Felton instead used the funds to buy a Ferrari, a million-dollar home, diamond jewelry, and other luxury items for himself,” said the complaint. “None of the proceeds were used for any of the purposes described in the offering materials.”

The SEC also alleges that T.I. offered and sold FLiK tokens on his social media accounts and falsely claimed to be a FLiK co-owner, while encouraging his followers to invest in the FLiK ICO. T.I. also asked a celebrity friend to promote the FLiK ICO on social media and provided the language for posts, referring to FLiK as T.I.’s “new venture.” The SEC’s complaint also alleges that T.I.’s social media manager William Sparks, Jr. offered and sold FLiK tokens on T.I.’s social media accounts.

The SEC is seeking injunctive relief, disgorgement of ill-gotten gains, and civil monetary penalties, as well as an officer-and-director bar against Felton. T.I. has settled and is required to pay a $75,000 civil monetary penalty and not participate in offerings or sales of digital-asset securities for at least five years.