As PBGC officials cautiously celebrate a second year of good fiscal news for the single-employer program, plan sponsors are equally guarded about what could happen if more plans drop out or Congress decides it is not done hiking premiums.
Another concern is whether the Pension Benefit Guaranty Corp.'s multiemployer program, projected to be insolvent by 2025, makes single-employer program resources too attractive for policymakers to ignore. The fact that the two programs are legally separated — a fact repeatedly emphasized by PBGC officials — has done little to dismiss fears of it happening if the PBGC's situation gets desperate enough.
Despite repeated PBGC assurances that single-employer program assets cannot be spent to help the multiemployer program, if nothing is done to prevent the multiemployer insolvency Congress could see that option as "a quick fix," said Michael Kreps, Washington-based principal at Groom Law Group LLP during a Nov. 5 keynote address at a recent Pensions & Investments conference.
The recent introduction of a Senate Republican proposal to help critically underfunded multiemployer pension funds and prevent more of them did little to calm fears that the proposed changes — including higher premiums and lower discount rates — could wind up hurting even healthy plans and the PBGC multiemployer program further.
That multiemployer program's $65.2 billion deficit in fiscal year 2019 quickly overshadowed the celebration of the single-employer program's $8.7 billion positive net position, giving the PBGC an overall deficit of $56.5 billion. That prompted PBGC Director Gordon Hartogensis to begin the fiscal year 2019 annual report released Nov. 18 with these sobering words: "The corporation is in a difficult financial position today."
First, the good news. The single-employer program, with assets of $128 billion and liabilities of $119 billion, gained more than $6 billion in net income this past fiscal year, thanks largely to investment gains and more revenue from higher premiums, the report said.
It helped the agency achieve its goal of eliminating its single-employer deficit by 2022 even faster, but it is not safe forever, warned Mr. Hartogensis in the report. "It still faces considerable risk," he said.
That risk could increase if any number of variables change, including the trend among plan sponsors to transfer pension risk through lump-sum offers and pension buyouts, lowering the number of plan participants and reducing premiums paid to the PBGC. Such moves by corporate plan sponsors show no signs of slowing down.
"Clearly the premium piece of PBGC income will go down because employers are taking action," said Linda K. Stone, senior pension fellow at the American Academy of Actuaries in Washington. "Derisking isn't slowing down — it's a vibrant marketplace."