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2019 Annual Report= Rocky Road

Updated: May 29, 2020

In November 2019, the federal Pension Benefits Guarantee Corporation (PBGC) released its annual report and it’s not looking so good. According to the PBGC, in 2019, there was a $65.2 billion fiscal deficit in its Multiemployer Pension Insurance Program. In 2018, this figure was $53.9 billion, revealing a $11.3 billion increase in just one year.

It is important to note that the agency is directed by Congress and backed by the U.S. Treasury. This deficit is a result of high liability rates and a much smaller number of assets flowing in.

The program has $68 Billion worth of liabilities that its responsible for, with only $2.9 billion in assets, it awash in red ink. PGBC director, Gordon Hartogensis, best explains why this is so concerning. “The multiemployer pension system faces a crisis that threatens the retirement security of millions of American workers, retirees, and their families.” “Without reforms, PBGC’s Multiemployer Insurance Program will run out of money.

That will leave about 1.5 million participants and beneficiaries in already-failing plans with much less than the PBGC’s guaranteed level of benefits. The alarm bells are ringing, and legislative changes are necessary.”

Without intervention from Congress, the PBGC expects funding to run out for its multiemployer pension program by 2025. You can count those remaining years on only one hand, so this issue is exceptionally dire. In 2019, the agency paid $160 million to 89 multiemployer programs, which is an increasing from the $153 million, it gave to 81 plans in 2018.

In a 2016 meeting, the Association warned that de-risking was likely to increase for healthy plans, leaving the PBGC exposed to the weaker plans - something the Association referred to as “anti-selection.” Increasing PBGC premiums would only make this “antiselection” more acute.

Our Spring 2019 newsletter article “Pension Agency Releases Part 2 of De-Risking Study,” referred to a Mercer Consulting study which supports exactly the points we raised years earlier. In contrast, the PBGC Single Employer Insurance Program has improved over the past year. Its net worth has increased from $ 2.4 Billion to $8.7 billion during 2019.

Through this program, the PBGC paid out $6 billion to over 932,000 retiree benefits in 2019. It also provides coverage for 51 single employer plans that were discontinued lacking a way to maintain retiree benefits.

For those with pensions backstopped by the PBGC, those benefit protections are at risk. This Association has had numerous meetings with the PBGC leaders and, in years past, even provided them guidance, when the storm clouds were merely forming on the horizon. We remain greatly concerned about this annual report from PBGC and its continued underfunding status.

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