PBGC Rescues 5 Multiemployer Pension Funds Covering 200,000 Workers and Retirees

The Pension Benefit Guaranty Corporation issued five special financial assistance grants this week, totaling approximately $5.8 billion. The grants will protect the pensions of approximately 200,000 participants.

The largest plan receiving SFA aid was the Bakery and Confectionery Union and Industry International Pension Fund, which received $3.4 billion on Friday. The Kensington, Maryland-based plan covers 103,056 participants in the bakery, tobacco, and grain milling industries. The plan was expected to become insolvent by 2030 when a 45% benefit cut would have been implemented.

A recent Form 5500 for the Bakery and Confectionary Pension was not available. But according to a funding notice, the plan was 47% funded in 2023.

The second largest grant was for $1.2 billion, and was awarded to the United Food and Commercial Workers Unions and Employers Midwest Pension Plan. The Rosemont, Illinois-based plan covered 35,223 in the food service industry and was expected to become insolvent in 2029, when it would have had to issue a 20% benefit cut. A recent Form 5500 was not available for UFCW Midwest.

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The third plan was the Graphic Communications International Union-Employer Retirement Benefit Plan. The Seattle, Washington-based plan received $913.5 million and covers 40,373 in the printing industry. The plan was expected to become insolvent in 2033, when it would have had to issue a 20% benefit cut.

According to the fund’s Form 5500 from the end of 2022, the plan had 1,387 active participants, 19,382 retired, 14,688 entitled to benefits in the future, and 3,927 beneficiaries of deceased participants. The plan was 38.87% funded.

The Retail, Wholesale and Department Store International Union and Industry Pension Plan, a pension fund based in Birmingham, Alabama, received a grant worth $261 million. The plan covers 21,079 participants in the food processing, retail and manufacturing industries.

According to the plan’s Form 5500 from the end of 2022, it had 1,611 active participants, 7,212 retired, 10,949 entitled to benefits in the future, and 1,307 beneficiaries of deceased participants. The plan was 65.3% funded.

The last plan to receive a grant this week, was the Pacific Coast Shipyards Pension Plan, which received $18.9 million. The Pleasanton, California-based plan covers 507 participants in the maritime construction industry. The plan was expected to become insolvent in 2032, when it would have had to issue a 35% benefit cut.

According to the plan’s Form 5500 from the end of 2022, it had 132 active participants, 50 retired, and 2 entitled to benefits in the future. The form did not disclose a funding level.

The SFA provision of the American Rescue Plan Act of 2021 allows for PBGC funding for severely underfunded multiemployer pension plans. Grants are calculated to ensure plan solvency through 2051.

Pension 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

The board of the Teachers’ Retirement System of the State of Illinois approved a new asset allocation plan at its June 18 board meeting, with the aim of enhancing the pension fund’s liquidity, as well as protecting the portfolio from volatile markets.

As a part of the new asset allocation target, the fund will raise its long-term target allocation to diversifying strategies to 6% from 4%. The fund currently has a 2.2% asset allocation to this asset class, with interim and long-term target allocations of 5% and 4% respectively.

The fund aims to decrease its long-term target for fixed income by 2 percentage points, from a target of 26% to a target of 24%. The fund currently allocates 28.5% of its assets to its income portfolio, which includes the funds fixed income holdings.

In the long term, the fund aims to increase its allocation to public equities and lower its allocation to private equity. The fund currently allocates 34.6% of its portfolio to public stocks, and 17.1% to private equity, with long-term targets of 37% and 15% respectively.

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The fund anticipates its real assets portfolio will remain relatively unchanged, with a current allocation of 17.7%, TRS has a long-term target of 18%, however plans to increase its real estate assets to 16% from 14.8% and decrease other real assets to 2% from 2.9%.

“Our investment strategy prioritizes protecting our members’ money because they count on us every month,” said Stan Rupnik, executive director and CIO of TRS, in a news release. “We continue to see growth within our investment portfolio, while working to minimize the impact of market volatility. This approach has successfully delivered results for our more than 448,000 members.”

At the end of the first quarter, assets of the pension fund reached $70.4 billion. At the end of May, the fund’s assets reached a high of $70.98 billion. The fund manages retirement benefits for more than 448,000 beneficiaries, current and retired educators and education personnel in Illinois.

The pension fund, like many Illinois suffers from being severely underfunded; TRS had a funded ratio of 44.8% at the end of fiscal year 2023. With such a low ratio, liquidity is increasingly important with the fund’s significant liabilities.

Manager Selection & New Commitments

The board of the pension fund also approved up to $570 million in commitments to new and existing and new private equity, real assets and fixed income investment managers.

As a part of its private equity portfolio, the fund made $95 million in commitments to managers. The fund made a $30 million commitment to existing manager Bregal Sagemount, a middle-market growth equity investor.

The pension fund also approved a $50 million commitment to Singapore-based TPG Partners, a new relationship with the pension fund and $15 million to existing emerging manager Mac Venture Capital.

The fund only made one commitment for its real assets portfolio; committing up to $300 million to Starwood Capital Group, which already manages $817.9 million of the fund’s assets.

The fund made commitments to two managers for its global income portfolio. It committed $75 million to public finance investor Fundamental Advisors, and another $100 million was made to Sixth Street Advisors, both existing managers for TRS.