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PBGC financial conditions improve, but multiemployer programs still at risk – annual report

Pension Benefit Guaranty Corp.'s financial condition improved in fiscal year 2018, with the single-employer program seeing its first net positive position since 2001, and even the multiemployer program seeing its deficit reduced slightly, according to an annual report issued Friday.

As of Sept. 30, the single-employer program had a surplus of $2.4 billion in assets, compared to a deficit of $10.9 billion at the end of FY 2017.

The multiemployer program, which is still headed toward insolvency by the end of fiscal year 2025, saw its deficit drop to $53.9 billion from $65 billion the previous year.

For both programs, the main reason for the financial improvement was higher interest rates used to calculate benefit liabilities. Other contributing factors were a strong economy, plans' investment returns, and the absence of new large claims this past fiscal year.

Despite the slight improvement for the multiemployer program, PBGC Director W. Thomas Reeder said on a news briefing call that "the overwhelming majority of obligations that are going to break us are future insolvencies. A tremendous wave of insolvencies is going to start in 2020." The agency will issue its annual projections report in early spring, Mr. Reeder said.

The PBGC will also issue its first report in the coming months on the trend of plan sponsors to derisk their plans with annuities, including how it impacts the agency. "We are beginning to get better information from plans," Mr. Reeder said.

This past fiscal year, the PBGC used its early warning program to strike agreements worth $500 million in funding protection for plans, with much of that coming from its agreement with Sears, which has improved funding of the Sears plans, he said.

Mr. Reeder stressed that most of the 1,400 multiemployer plans covered by the PBGC are not at risk, but 130 plans are, and some will run out of money in less than 10 years.

On the single-employer side, Mr. Reeder cautioned that a net positive position last recorded in 2001 "disappeared very quickly" when airlines and steel businesses declined.