PBGC Multiemployer Program Deficit Grows to $65.1 Billion

The Pension Benefit Guaranty Corporation (PBGC) reported in its annual report that the deficit in its insurance program for multiemployer plans rose to $65.1 billion at the end of fiscal year 2017, up from $58.8 billion the previous year.

The PBGC attributed the increase to the ongoing financial decline of several large multiemployer plans that are expected to run out of money in the next decade.

“Our attention is focused on the dire financial condition of the multiemployer program,” said PBGC Director Tom Reeder in a release. “We are engaged with trustees of troubled plans to help them protect benefits and extend plan solvency. We will continue to work with the administration, Congress, and the multiemployer plan community to create solutions so that PBGC’s guarantee is one that workers and retirees can count on in the future.”

However, unlike the multiemployer program, the deficit for PBGC’s single-employer insurance program was nearly cut in half during the year, falling to $10.9 billion from $20.6 billion at the end of fiscal year 2016. The PBGC said the drivers of its continued improvement include premium and investment income, as well as increases in the interest factors used to measure the value of future liabilities.

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“We are pleased that the financial condition of the single-employer program is improving, consistent with our projections,” said Reeder.

As of Sept. 30, the multiemployer program had liabilities of $67.3 billion and assets of $2.2 billion. The increase of $6.3 billion in liabilities during the year were mainly due to 19 plans newly classified as probable claims because they either terminated or are expected to run out of money within the next decade.

The PBGC provided $141 million in financial assistance to 72 insolvent multiemployer plans during fiscal 2017, compared to last year’s payments of $113 million to 65 plans. The PBGC said the demand for financial assistance from PBGC will increase as more and larger multiemployer plans run out of money and need help to provide benefits at the guarantee level set by law. It said the assets and income of PBGC’s multiemployer program are only a small fraction of the amounts PBGC will need to support the guaranteed benefits of participants in plans expected to become insolvent during the next decade.

In its most recent projections report, the PBGC estimated that without any changes in the law, its multiemployer program will likely run out of money by the end of 2025, and possibly sooner. The PBGC added that if the multiemployer insurance program becomes insolvent, PBGC will only be able to provide enough financial assistance to pay a small fraction of guaranteed benefits in insolvent plans.

Meanwhile, the PBGC’s single-employer program had liabilities of $117 billion, and assets of $106 billion as of Sept. 30. The deficit of $10.9 billion is a $9.7 billion improvement from $20.6 billion last year. In fiscal year 2017, the agency paid $5.7 billion in benefits to nearly 840,000 retirees, which is the same as last year.

In its report, the PBGC said it became responsible for 82 single-employer plans that terminated without enough money to provide all promised benefits during the year. Those plans cover 23,000 current and future retirees. In addition, PBGC helped to protect nearly 27,000 people by taking action in Chapter 11 cases to encourage companies to keep their plans ongoing upon emerging from bankruptcy. It also negotiated two agreements under its Early Warning Program that provided nearly $600 million in financial protection for more than 240,000 people in plans put at greater risk by corporate transactions.

While the PBGC’s two separate pension insurance programs are both designed to protect participants’ pension benefits when plans fail, they differ significantly in the level of benefits guaranteed, the insurable event that triggers the guarantee, and premiums paid by insured plans. By law, the two programs are financially separate, and the assets of one program may not be used to pay obligations of the other.

Tags: Multiemployer Pension Plans, PBGC, Pension

The Communication Workers Union (CWU) has told its members they should reject telecommunications giant BT’s pension proposals.

The union said that BT’s proposals to change benefits for participants of the BT Pension Scheme (BTPS) were a “slap in the face to loyal employees.” The union said that both BTPS and the BT Retirement Saving Scheme (BTRSS) members are affected by different proposals that the union says, “totally fail to grasp the importance hard-working employees place on decent pension provision in retirement.”

The CWU said it is urging members of both BTPS and BTRSS “to say no” to all of BT’s proposals. The BTPS is the company’s defined benefit pension plan, and the BT Retirement Saving Scheme is the company’s defined contribution pension plan.

The CWU objects to BT’s proposal to close the BTPS for future service accrual from April 1, 2018, increase member contributions by up to 3% of salary, and remove the current National Insurance rebate, which it said would cost members another 1%.

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“BT is hoping that faced with the option of closure, members will accept these radical changes and embrace significant cuts in their future pension,” said Andy Kerr, CWU’s deputy general secretary. “There is no way this is acceptable or fair.”

CWU said it is convinced that “only an overwhelming expression of employee anger at the company’s current proposals will provide the impetus required for a meaningful company rethink,” adding that “a major industrial relations showdown looks inevitable.”

The union said BT’s proposals would have a “dramatic impact” on pensions beginning in April 2018, and would be “particularly detrimental” to those under the age of 50. It also said that the benefits built up every year from April 2018 would be 12.5% less than what it would be under the current pension arrangement, and would build up at only 120th of members’ pensionable salary each year, which the union says is the legal minimum.

CWU also balked at BT’s proposal to introduce a cap on the amount that pay can increase for pension purposes at a maximum of CPI inflation each year. The union said that over the past 10 years, pay rises at BT have consistently been higher than CPI.

“Assuming average pay rises of 1% above CPI means that in the next decade around 10% of your salary would not count towards your pension,” CWU said in a bulletin to its members.

The union said it wants BT to contribute twice as much to the pensions as members do, and claims this would cost about 0.2% of BT’s 2016-17 profits.

“The changes proposed by BT would make the BTPS almost unrecognizable” said the CWU. “They are designed to make the BTPS look comparable to the BTRSS, but fail to take into account your pension expectations. BT can afford more.”

Tags: BT, Communications Workers Union, Pension, Pension Reform, UK