The ERISA Industry Committee (ERIC), a national non-profit organization that represents the largest employers in the U.S., is calling on Congress to re-examine the premiums paid by companies that sponsor defined benefits (DB) plans. The news comes as the Pension Benefit Guaranty Corporation (PBGC) releases its Fiscal Year 2022 Annual Projections Report, which states that the PBGC's Multiemployer Program is likely to remain solvent for 40 years in 60% of projected scenarios.
The "Annual Projections Report" provides ranges and estimates for the financial health of PBGC's insurance programs 10 years into the future. This year, PBGC projects a surplus of $63.6 billion by FY 2032 – an increase of more than $10 billion in the last year (in FY 2021, PBGC reported an average $53.3 billion surplus for FY 2031).
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"PBGC's single-employer insurance program has been overfunded for years, yet the law provides for automatic annual premium increases, which impose expenses on retirement plan sponsors that are completely unnecessary," said Andy Banducci, Senior Vice President for Retirement and Compensation Policy at ERIC. "Current premium levels are clearly inflated and altogether unnecessary for PBGC's insurance program to be sustainable. Any additional increases are unwarranted and will not provide additional benefits or protections for employees."
In addition to addressing premium levels, Banducci urged Congress to eliminate arcane budget scoring rules that have permitted the use of premium increases to "offset" spending proposals unrelated to the retirement system.
For its part, the PBGC's report notes that its insurance programs protect participant pension benefits up to the level of PBGC's guarantees, which are defined by law. However, plan-level benefits may exceed the PBGC guarantee, causing participants to lose a portion of their accrued benefits. It is important to note that even under scenarios where both programs remain solvent indefinitely, many participants may face benefit reductions to the PBGC guaranteed level upon termination of an underfunded single-employer plan or the insolvency of a multiemployer plan.
The report also states that as the net position of the Single-Employer Program improves, the potential for a negative net position in the future decreases, even in scenarios with very high projected claims.
"Existing underfunding is more acute in plans sponsored by companies with the highest risk of financial distress, and any downturn in the economy increases both underfunding and the probability of claims to PBGC," says the report. "PBGC's FY 2022 Annual Report shows that plans sponsored by employers with below-investment-grade credit ratings had an aggregate underfunding of $52.0 billion when measured using plan termination assumptions as of December 31, 2021. This is down from the $105.4 billion in aggregate underfunding reported in the FY 2021 Annual Report as of December 31, 2020. This Projections Report includes a new 10-year stochastic projection of total underfunding of PBGC-insured single-employer plans."
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