PBGC’s Insurance Programs Are in Strong Financial Shape, Report Says

Both single and multiemployer programs are in the green for years into the future.



The Pension Benefit Guaranty Corporation published its Projections Report for Fiscal Year 2022 Wednesday, showing both the single and multiemployer plan programs in strong financial positions and expected to remain solvent through their projection periods.

The PBGC said that “the projections show no scenarios in which the Single-Employer Program runs out of money within the next 10 years.” The net financial position of the program is also expected to improve over the next 10 years, largely due to improved plan funding, which reduces the PBGC’s expected liabilities.

The PBGC expects the single-employer program to have net assets of $63.6 billion in 2033, an improvement on the $53.3 billion it projected last year for 2032. The single-employer program has 22.3 million participants.

The PBGC reported similarly rosy results for the multiemployer program. The corporation said that the median projected insolvency date for the multiemployer program was 2062, which was the end of the projection period. Prior to the Special Financial Assistance Program included in the American Rescue Plan Act, the projected insolvency date was 2026. The multiemployer program covers 11.2 million participants.

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The report also stated that the PBGC expects $79.7 billion to be paid out in total under the SFA program. The estimate is based on the amount already paid out, pending applications and potentially eligible plans that may apply in the future.

The strong financial status of the two programs drew industry comment concerning the insurance premium rates paid by pensions to the PBGC. A statement from the ERISA Industry Committee said the surplus “should cause Congress to reexamine the premiums paid by companies that sponsor defined benefit pension plans.”

The statement from ERIC also recommended decoupling PBGC funding from general federal budget scoring, which can create perverse incentives that allow the PBGC to go overfunded to “offset” other spending priorities, including those “unrelated to the retirement system.”

John Lowell, a partner at October Three, an actuarial consulting firm, says that “every plausible projection shows that the fund will remain significantly overfunded for the foreseeable future.” Congress should take this opportunity to reduce premium rates, which he says “cause plan sponsors to either terminate their plans or to de-risk through pension risk transfer or lump sum windows.”

Lowell adds that the difference in median and mean projections in the report for multiemployer plans suggests that some projections likely anticipate the insolvency of a small number of large plans and that Congress should assist the PBGC to prepare for this possibility.

Section 349 of the SECURE 2.0 Act of 2022 capped the premium variable rate for the underfunded portion of single-employer plans at 5.2% of the plan’s unfunded liabilities. The rate had previously been tied to inflation.

All other items that are used to calculate PBGC premiums, however, remain tied to inflation. That includes the amount paid per participant ($96 for single-employer and $35 for multiemployer for 2023), as well as the cap per participant paid on a plan’s unfunded liabilities ($652).

Lowell recommends that Congress “eliminate the annual inflationary increases” and “reduce fixed rate premiums and the percentage of underfunding subject to variable rate premiums.”

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Offices Aren’t the Most Threatened Real Estate Sector—Apartments Are

Morningstar says multi-family’s finances are even more precarious.



The woes of office buildings get a lot of attention: Near-empty downtown towers, with so many employees working from home, could end up defaulting on their loans, with horrible consequences for real estate investors.

But there is an even bigger menace in commercial real estate, according to a Morningstar research paper: multi-family, which comprises the largest real estate category, at 18.5% of market value (compared with 15.5% for offices). “Real estate loans in this area are looking especially wobbly,” wrote the report’s author, Madeline Hume, a senior research analyst at Morningstar Research Services, a subsidiary of the research giant.

How come? A large number of apartment developers took out loans in 2021, when interest rates were cheap. Unfortunately, Hume found, rates have climbed a lot since then, and multi-family loans reset after just two or three years.

As a result, Hume warned, “property developers for multi-family units are just now about to enter the gauntlet of higher rates.” This means “an $8 billion tsunami of multi-family commercial mortgage-backed securities—or CMBS, for short—is expected to come due, starting in the second half of this year. Some in the real estate market are calling it the Red October.”

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What’s worse, she continued, much of the lending comes from regional banks, which are facing problems staying afloat. These lenders, Hume contended, “are likely to be in no mood to make accommodations or take concessions; they want their money back.”

On the plus side, Hume went on, most CMBS are guaranteed by agencies such as Fannie Mae, Freddie Mac and Ginnie Mae. Thus, even if the loans default, one of these agencies will make investors whole, eventually.

Of course, such turbulence likely would take a while to be resolved, and a bunch of apartment buildings would be left in limbo. Asset allocators that have equity positions in multi-family would be left with problem properties on their books.

Hume noted that the “most glaring areas of stress, like downtown offices, are not always where the biggest dollars are at risk.”


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