The Pension Benefit Guaranty Corp.’s single-employer insurance program cut its funding deficit nearly in half in 2017, largely on the strength of favorable actuarial adjustments, increased premium payments from employers, and strong returns on invested assets.
The deficit in the single-employer pension program now stands at $10.9 billion, down from $20.6 billion at the end of fiscal year 2016. PBGC is projecting the program will run a surplus within the next decade. The program’s deficit topped $29 billion in 2012.
About 22,500 single-employer defined benefit retirement plans, covering 30 million workers, are insured by PBGC.
Total premium revenue was more than $6.7 billion in 2017, about a $518 million increase from 2016.
Employer premiums to PBGC have skyrocketed over the past decade. In 2008, the single-employer program collected $1.3 billion in premiums; premiums paid were just short of $3 billion in 2013.
Congress—not PBGC—sets premiums for both the single-employer and multiemployer insurance programs.
In 2017, $5.7 billion in retirement benefits were paid to approximately 840,000 retirees from 4,845 failed plans. Five new plans, with $3.1 billion in aggregate funding shortfalls, were classified as probable terminations.
The number of single-employer pension plans taken over by PBGC increased by 76 from 2016. In 2008, PBGC was responsible for 3,850 plans, or about 1,000 fewer than in 2017.
The 76 terminated plans had an average funded ratio of 45 percent, and accounted for $526 million in revenue losses the single-employer balance sheet.
The six largest single-employer plans taken over by PBGC in 2017 were the following:
Hancock Fabrics, Inc. (4,149 participants)
Marsh Supermarkets, Inc. (4,011 participants)
Noranda Aluminum, Inc. (two plans; 3,120 participants)
SBC Holdings, Inc. (3,010 participants)
Washington Inventory Service (2,193 participants)
The single-employer program saw a net income increase of $9.6 billion in 2017, compared to $3.5 billion in 2016.
Total assets in the single-employer program now total more than $106 billion.
By law, that money cannot be used to fund PBGC’s multiemployer program, which is facing a $65 billion deficit and stands a more-than 50 percent chance of depleting reserves by the end of 2025.
Investments in global equities generated $4.5 billion in income in 2017, compared to $2.8 billion in 2016. Global fixed-income investments generated another $571 million in revenue.
Employers slated for two more years of premium increases
The increased premiums that have gone so far to shore up the single-employer program’s finances have been the source of consternation among plans sponsors.
The Bipartisan Budget Act of 2015 scheduled new increases through 2019.
Sponsors paid a flat rate premium of $69 per participant in 2017, which will increase to $74 next year, and $80 in 2019.
The variable rate premium in 2017 was $34 for every $1,000 of unfunded liabilities. That will increase to $38 next year, and $42 in 2019.
After 2019, premiums will be indexed to average national wages, assuming Congress does not increase premiums.
When single-employer plans are taken over by PBGC, participants receive a maximum guaranteed pension benefit. The agency will pay out amounts above the guarantee when sufficient assets remain in plans to cover the benefits.
In 2017, the maximum guaranteed annual benefit for a worker age 70 was nearly $107,000. For a worker age 55, it was $29,000.
Protecting plans before they go under
PBGC played an active role in plans sponsored by companies facing financial difficulties or bankruptcy.
The agency negotiated a series of agreements to protect the 200,000 participants in Sears’ pension plans.
It also audits plans that go through standard terminations to ensure a sponsor’s lump-sum payments have been calculated accurately.
In 2017, about 1,480 plans covering approximately 195,000 participants filed standard terminations.
PBGC audited 343 of those plans, resulting in an additional $4.6 million in benefits for 435 participants.
In 2014, PBGC launched a campaign to hire disabled veterans. Last year saw an increase of 20 percent in newly hired disable veterans.