Strap yourself in: Yesterday the Pension Benefit Guaranty Corp. released its annual report for 2016. Once again the news is dire from the federal agency, which pays out a portion of the pension benefits earned by active plan members and by retirees whose plans become insolvent. But just in time for the holidays, there is some cheer despite the coal in participants’ stockings.
First the bad news. The deficit for the PBGC’s multiemployer insurance program, which covers some 10 million labor union employees, has risen to a whopping $58.8 billion as of September 30, from $52.3 billion a year earlier. The increase is mostly due to expectations that more of the roughly 1,400 defined benefit pensions covered will run out of money in the next decade.
To remedy this huge deficit, PBGC director Thomas Reeder, appointed in late 2015 by President Barack Obama, plans to keep working with Congress on long-term solutions that include boosting multiemployer premium revenue and reforming the premium structure.
“The reason we should act to fix this problem now is that the longer we wait, the more premiums will have to be increased to address PBGC’s growing shortfall in the multiemployer program,” Reeder says.
In the 2016 fiscal year the agency, which also runs an insurance program for plans sponsored by single employers, paid out $113 million in financial assistance to 65 multiemployer pension plans covering the benefits of more than 59,000 participants. Ten of the 65 plans, representing a total of about 10,000 participants, became insolvent this year. An additional 27,000 people are entitled to benefits once they retire.
It remains to be seen whether the PBGC, which today pays benefits to nearly 840,000 retirees and beneficiaries — close to 560,000 workers are scheduled to receive them when they retire — will get a premium increase.
A big challenge to Reeder’s plans is that the PBGC must petition Congress for such increases. In that way it operates differently from, say, the Federal Deposit Insurance Corp., which can set its own premiums just like a private insurer.
Now for the good news. A successful petition to raise premiums in the much larger single-employer program — pushed for under Reeder’s predecessor, Joshua Gotbaum — is bearing fruit. The PBGC reported a $20.6 billion shortfall in single-employer assets as of September 30. But that program, which protects about 30 million active workers and retirees in 22,000-plus pension plans, improved by $3.5 billion over the previous year. Even better, it’s expected to become solvent by 2025, when it will have $2.6 billion surplus, according to projections.
In his 2017 budget, President Obama asked the PBGC’s board of directors, which includes Secretary of Labor Thomas Perez and Treasury Secretary Jacob (Jack) Lew, to raise $15 billion in additional premium revenue to eliminate the risk that the agency will become insolvent within 20 years. Will a new Republican administration and Congress follow through on this request?