The Pension Benefit Guaranty Corp.'s single-employer insurance program grew its surplus by more than $6.2 billion in fiscal year 2019, according to the agency's recently released annual report.

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

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

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

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. Lawmakers passed 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 rate premium for unfunded benefit obligations, from $9 for every $1,000 of unfunded obligations in 2012, to $45 for every $1,000 in 2019.

Further hikes are not scheduled. But both sponsors and pension consultants have been critical of the premium hikes, which they allege Congress implemented in two spending bills for larger budget reasons.

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

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

Much of that cost was baked into the 2018 balance sheet, as PBGC foresaw the terminations as probable. As of the end of the fiscal year in September, there were no probable terminations on PBGC's radar.

The single-employer program has more than $128 billion in total assets. Along with the increase in its surplus, and the fact that there are no near-term foreseeable terminations, employers can be expected to continue to lobby Congress for premium relief, says Alan Glickstein, managing director, retirement, at Willis Towers Watson.

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

While a financially healthy single-employer program is clearly good for the nearly 900,000 retirees whose pensions are managed by the agency, and the nearly 34 million participants in single-employer plans, critics of the premium increases say they add incentive for sponsors to freeze plans, or terminate altogether.

"The surplus reinforces the consistent message from the plan sponsor community ever since the series of unwarranted premium increases were driven by unrelated federal spending," added Glickstein. "Hopefully this will help lawmakers see the importance of acting here, as the increases further drive premium paying sponsors out of the system."

Standard terminations on the rise

Evidence is emerging that the premium increases may indeed be having an impact on sponsorship of private sector defined benefit plans.

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

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

Total terminations have increased by 33 percent in the past three years. The majority of terminations were small plans with fewer than 300 participants.

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

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

Premium increases are not cited by PBGC as motivating the increased terminations.

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

READ MORE:

Instant Insights /

Rising premiums drive PBGC's single-plan surplus

More From HR Executive

Related Stories

Recommended For You