When multiemployer plans goinsolvent, PBGC provides loans that allow plan trustees to payparticipants the pension benefits guaranteed by theagency – loans that are “rarely” repaid. (Photo:Shutterstock)

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The Pension Benefit Guaranty Corp.'s multiemployer insuranceprogram's deficit decreased by $11.18 billion in FY 2018, largelydue to increases in the interest rates used to project the cost offuture liabilities, according to the federal agency's annualreport.

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The multiemployer program insures the pensions of 10.6 millionparticipants in 1,400 collectively bargained pensions. Theprogram's total liabilities were $56.15 billion at the end of theyear, down from $67.3 billion at the end of last year.

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The program's total assets remained largely unchanged, at $2.3billion, putting the program's funding deficit at $53.9 billion. In2018, PBGC collected $292 million in premium income frommultiemployer plans, the most it has received in the past decade,and 300 percent more than was collected in 2009.

Out of cash reserves by end of 2025

In spite of the improvement in the program, the multiemployerprogram is still projected to run out of cash reserves by the endof 2025, if Congress doesn't act.

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Under the program's existing structure, PBGC guarantees amaximum of roughly $15,000 a year for participants with 35 years ofservice in an insolvent plan and $13,000 for participants with 30years of service. The maximum guarantee for workers with 20 yearsof service is $8,580, according to the annual report.

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When the program's cash reserves are exhausted in 2025, PBGCwill only be able to insure a fraction of what it now guaranteesfrom the revenue drawn on annual premium receipts.

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PBGC does not assume control of plan assets when multiemployerplans go insolvent, as it does with assets in its single-employerinsurance program when plan sponsors go bankrupt.

Loans made by PBGC are “rarely” repaid

Rather, PBGC furnishes insolvent multiemployer plans with loansthat allow plan trustees to pay participants the benefitsguaranteed by the agency. By the program's design, the loanscontinue until a plan no longer needs assistance or all of theguaranteed benefits have been paid. According to PBGC's report, theloans are “rarely” repaid.

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PBGC segments its liabilities in two groups: plans that arealready receiving loans, and “probable” plans that have eitherterminated or are expected to be insolvent in the next 10years.

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By the end of FY 2018, 78 multiemployer plans were receivingPBGC loans, accounting for $2.4 billion in liabilities to theprogram. Seven plans, covering about 1,100 participants, becameinsolvent in 2018.

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Another 64 plans have terminated but have yet to start receivingloans, accounting for $1.7 billion in liabilities.

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But the source of the existential threat to PBGC is found in theprobable plans expected to go insolvent in the next decade.

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According to the report, 42 multiemployer plans will be in needof assistance within 10 years, accounting for $52.1 billion of theprogram's current liabilities.

Improved net position won't delay when PBGC burns throughassets

Improved interest rates helped PBGC in two ways over FY2018.

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They accounted for a nearly $6 billion decrease in the cost ofits future liabilities. And four multiemployer plans that hadpreviously been classified as probable insolvencies were removedfrom that list, largely because of their improved balance sheetsfrom strong investment returns.

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Updated data on plan demographics resulted in another reductionof $2 billion to the multiemployer program's liabilities. Theagency also actualized $1.6 billion more in returns on its assetsthan it previously projected.

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The four plans that were removed from the probable listaccounted for a $1.6 billion reduction in the program'sliabilities.

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Nevertheless, the overall reduction in liabilities does notchange the impending exhaustion of PBGC's cash reserves, or itstiming.

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The agency's FY 2017 Projections Report shows the chances ofinsolvency rise to greater than 90 percent by the end of FY 2025,or seven years from now, and greater than 99 percent of 2026.

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“The Corporation has sufficient liquidity to meet itsobligations for a number of years; however, barring changes, theMultiemployer Program will certainty not be able to fully satisfyits long-term obligations to plan participants,” the reportsays.

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On November 30, a bipartisan Joint Select CongressionalCommittee is scheduled to release a report on the impendinginsolvency of multiemployer plans and the PBGC.

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.