As recentlyas 2012, the single-employer program was running a $29.1 billiondeficit; it has improved its cash position by nearly $38 billionsince then. (Photo: Shutterstock)

The Pension Benefit Guaranty Corp.'s single-employer insuranceprogram grew its surplus by more than $6.2 billion in fiscal year2019, according to the agency's recently released annualreport.

The program, which insures more than 24,000 single-employerplans, is now running an $8.65 billion surplus.

As recently as 2012, the single-employer program was running a $29.1billion deficit; it has improved its cash position by nearly $38billion since then.

Related: Clock ticking on PBGC Multiemployer InsuranceProgram

Premium hikes largely account for the increase, along withstrong returns in equity markets. In FY 2019, the program collectedmore than $6.3 billion in premiums. In 2012, it collected $2.6billion.

Investment income grew by more than $14.8 billion in 2019,compared to $1.5 billion the previous year.

Congress–not PBGC–sets premium rates for the agency. Lawmakerspassed a series of premium hikes for the single-employer program,beginning in 2013.

In 2019, the per-participant flat rate premium as $83 per head.It was $35 in 2012. Congress also increased the variable ratepremium for unfunded benefit obligations, from $9 for every $1,000of unfunded obligations in 2012, to $45 for every $1,000 in2019.

Further hikes are not scheduled. But both sponsors and pensionconsultants have been critical of the premium hikes, which theyallege Congress implemented in two spending bills for larger budgetreasons.

PBGC's increased premium revenue is scored as increased revenueto the overall federal budget, even though by law the premiumrevenue can't be used for anything but PBGC's insuranceprogram.

The improved surplus comes in spite of 47 underfunded terminatedplans PBGC took over last year, resulting in an aggregate $1.5billion loss to the program.

Much of that cost was baked into the 2018 balance sheet, as PBGCforesaw the terminations as probable. As of the end of the fiscalyear in September, there were no probable terminations on PBGC'sradar.

The single-employer program has more than $128 billion in totalassets. Along with the increase in its surplus, and the fact thatthere are no near-term foreseeable terminations, employers can beexpected to continue to lobby Congress for premium relief, saysAlan Glickstein, managing director, retirement, at Willis TowersWatson.

"The lobbying has not stopped," Glickstein explained in anemail. "In many respects, this surplus was anticipated, may growfurther, and is even understated—the basis used to measure theliabilities is not what we would use."

While a financially healthy single-employer program is clearlygood for the nearly 900,000 retirees whose pensions are managed bythe agency, and the nearly 34 million participants insingle-employer plans, critics of the premium increases say theyadd incentive for sponsors to freeze plans, or terminatealtogether.

"The surplus reinforces the consistent message from the plansponsor community ever since the series of unwarranted premiumincreases were driven by unrelated federal spending," addedGlickstein. "Hopefully this will help lawmakers see the importanceof acting here, as the increases further drive premium payingsponsors out of the system."

Standard terminations on the rise

Evidence is emerging that the premium increases may indeed behaving an impact on sponsorship of private sector defined benefitplans.

So-called standard terminations, where a sponsor ends a fullyfunded pension plan by paying all of its obligations, or transfersthe obligations to insurance companies, are on the rise.

In the last fiscal year, 1,782 plans filed standardterminations. That number is up from the five-year average of 1,427terminations.

Total terminations have increased by 33 percent in the pastthree years. The majority of terminations were small plans withfewer than 300 participants.

But 11 large plans filed standard terminations last year, nearlythree times the number of plans that did so in 2018.

Mid-size and large plan terminations are expected to continue toincrease, as is the overall trend in increased terminations, PBGCsays.

Premium increases are not cited by PBGC as motivating theincreased terminations.

Rather, the report says rising interest rates, which reduce thecost of settling benefit obligations, "possibly" explains thetrend, according to the report.

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