PBGC Assists Automotive, Trucker, Retail Pension Plans

The Pension Benefit Guaranty Corporation granted Special Financial Assistance packages to three struggling multiemployer pension plans on July 11, including more than $1 billion dollars to a single plan.

The Automotive Industries Plan, based in Dublin, California, received $1.1 billion in assistance. The plan has 23,687 participants and was expected to become insolvent in 2033. Upon insolvency, it would have had to cut benefits by about 50%.

The 5500 Form for the Automotive Industries Plan showed it had 3,024 active participants at the end of 2021. It also had 9,305 participants receiving benefits and 9,011 inactive participants entitled to benefits in the future.

The Western Pennsylvania Teamsters and Employers Pension Plan received $279.5 million in supplemental assistance on top of the $715 million it received in July 2022. The Pittsburgh-based plan has 21,110 participants and became insolvent in August 2019, when it implemented a 20% benefit cut to about 15,000 participants.

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According to the Western Pennsylvania Teamsters and Employers’ Form 5500, the plan had 3,799 active participants at the end of 2021, as well as 8,528 participants receiving benefits and 5,437 separated participants entitled to future benefits.

Lastly, the Retail Clerks Specialty Stores Pension Plan, based in Concord, California, received $60.4 million in assistance. The plan has 1,274 participants and was expected to become insolvent in 2024, when it would have had to cut benefits by 15%.

Form 5500 for this plan showed it had 32 active participants at the end of 2021, as well as 849 participants receiving benefits and 331 separated participants entitled to future benefits.

The SFA provision of the American Rescue Plan Act allows for PBGC funding for severely underfunded multiemployer pension plans. Funds that receive assistance must monitor the interest resulting from the grant money as separate from other sources of funding. The PBGC requires that at least two-thirds of the money it provides be invested in “high-quality fixed income investments.” The Final Rule on Special Financial Assistance, issued in July 2022, states that the other third can be invested in “return-seeking investments,” such as stocks and stock funds.

Tags: PBGC, SFA

A happy shop is a productive shop. And such a business gives the best returns for investors. That is the thesis of a new study from U.K. asset manager Schroders plc, providing a framework for quantifying how companies’ use of their human resources affects their stock market prospects.

Measuring human capital—defined by the Organization for Economic Cooperation and Development as the skills, knowledge and other characteristics that result in productivity— has never been easy. The study from Schroders, in collaboration with Saïd Business School, University of Oxford, and the California Public Employees’ Retirement System, attempts to do that and to go one step beyond by showing a connection between human capital and investment returns.

“As the corporate landscape evolves in a more volatile market, a company’s workforce is integral to its performance,” said Marina Severinovsky, head of North American sustainability at Schroders, in a statement.

She added, “However, the market has lacked distinct, quantitative ways to analyze these factors as tangible assets. This research allows us to identify companies that are leaders and laggards in human capital management to make informed allocation and engagement decisions.”

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The Schroders report crunches significant data to arrive at numbers it then uses to assess how investment returns are affected. Factors measured include salaries, benefits, stock compensation, lost days, turnover and training. Other things go into the mix, too, such as 1) the difference between a company’s employee average pay and that elsewhere, and 2) net operating profit after tax, divided by fixed assets and net working capital.

There have already been many studies gauging human capital in terms of training, spending on employees and expected company earnings. These different approaches are often at odds with each other, according to a paper last year from the National Bureau of Economic Research.

The Schroders study aims to tie these together and thereby track their impact on investment returns. Thus, “companies with strong human capital management are likely to be more capable of navigating the future effectively,” said Angus Bauer, the firm’s head of sustainable research, in the statement.

The study references investing guru Benjamin Graham’s term “margin of safety,” which is how much a company is undervalued in the stock market. In the report, a dot plot shows unnamed companies with a Schroders human capital management score higher than their market valuation.

Schroders’ method is a challenging one. As the report noted, it “knocks on the door of a different approach to understanding the creation of value.”