PBGC Update - New Bill

[imoldernu]

Article on the move to save the Pension Benefit Guarantee Corporation. Posted just as an item to follow. The internet is full of biased articles. Please don't turn this into a political thread. Just a heads up on what may be going on for a while.

https://www.cnbc.com/2019/07/12/the...risk-of-going-broke-lawmakers-need-a-fix.html

 

[ERD50]

Before anyone gets too excited, this appears to be an issue only with the multi-employer plans. I just skimmed the article, but it seems like another case of bad news is more exciting than good news. Not a single word about the Single-Employer plans, which the majority belong to.

From the PBGC site:

The financial status of the Single-Employer Program shows continuous improvement and reached a positive net position this year. However, the Multi-employer Program remains in deep deficit and we project that under current law it will run out of funds within the next several years.

Also, "The Pension Benefit Guaranty Corporation protects the retirement security of nearly 37 million American workers, retirees and their families in private-sector defined benefit pension plans."

The article states that

About 1.3 million Americans could have their retirement funds at risk if Congress can’t come up with the money to pay the benefits people were promised.

So 1.3/37 ~ 3.5%. A big deal if you are in a Multi-Employer plan, but it would be nice if these articles made that distinction and provided some perspective, rather than all the sky-screaming we see.

I guess "Private Pensions are safe for 96.5% of retirees" doesn't make a "good" headline? In other news, thousands of commercial airplanes took off and landed safely today!

-ERD50

 

[Big_Hitter]

Before anyone gets too excited, this appears to be an issue only with the multi-employer plans.

-ERD50

correct

 

[ERD50]

After a quick read, I'm not thrilled with the plan. It is a bail out that should not have been required. This is an insurance plan that was to be paid for by the companies providing pensions. They pay a formula amount each year to the PBGC for this insurance. No Federal funds were to be used in the payments or the administration of the program. That's as it should be.

So it's not news that the Multi-Employer plans were in trouble. The insurance rates and/or reserve requirements for the participating companies should have been increased years/decades ago.

If you rely on one of these ME pensions, you can't be complacent, it's your money. You should have been writing letters to your reps and PBGC for years to get these plans funded properly as was intended. And plan accordingly. It sucks, but there really are no 100% guarantees.

It would be nice to see what actions were proposed over the years, and who failed to act on them. It would be nice if those people could be held accountable.

-ERD50

 

[Big_Hitter]

in other news, the PBGC's single employer fund appears solvent

https://www.pbgc.gov/news/press/releases/pr18-08

 

[imoldernu]

I guess "Private Pensions are safe for 96.5% of retirees" doesn't make a "good" headline? In other news, thousands of commercial airplanes took off and landed safely today!
-ERD50

Not an argument about the relative number of employees, but still a concern. Actually 30 million in single employer plans versus 10 million in multi employer plans.

The single-employer program protects 30 million workers and retirees in 22,000 pension plans. The multiemployer program protects 10 million workers and retirees in 1,400 pension plans.

As for the "safe" part... that may not be correct for every "single employer" plan. The laws regarding this guarantee are quite complex, and the protections are not necessarily 100%. This wiki article may be a difficult read, but explains the guarantees are based on the individual plan.

https://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corporation

Some info on the single payer plans...

In fiscal year 2018 PBGC added 58 more failed single-employer plans, bringing its inventory to 4,919 plans, and paid $5.8 billion in benefits to 861,000 retirees in those plans.

For those who aren't sure, the PBGC, has a link that defines the guaranty, based of the serial number of each plan. Not every guaranty has the same criterion.
https://www.pbgc.gov/search-insured-plans

The "percent funded" is a good key to determining the longer term viability of each individual plan. While my DIL has an Illinois State plan and is not covered by the PBGC, Son's smaller plan was only funded by 70% a few years before he retired, the company made that up to 100% in his last year of work.

The devil will be in the details... what is safe today, could change during the retirement period.

One of the situations that I came across when negotiating with MetLife on another matter, was their failure to pay some 30,000 members of pension plans they had guaranteed. Some time ago, but a case that has prompted some changes in the PBGC rules.

In any case, it costs nothing to check on a plan's viability, considering the number of years one anticipates receiving benefits.

 

[Big_Hitter]

The "percent funded" is a good key to determining the longer term viability of each individual plan.

how do you figure?

seems like plan sponsor financial strength is a much bigger deal than an arbitrary funded percentage

 

[USGrant1962]

MEPPs have been a mess for quite a while. I think the core problem is that a lot of the employers are out of business (many long ago) and the un/under-funded liabilities are accruing to fewer and fewer remaining companies. These are liabilities for other companies' employees. Not a good setup.

 

[imoldernu]

how do you figure?

seems like plan sponsor financial strength is a much bigger deal than an arbitrary funded percentage

This may be a little off-topic, but a case in point. A long time ago... 34 years, I learned how the Chicago Pension disasters began. At the time, Chicago's credit, was not considered to be as bad as it is today. The teachers retirement fund looked pretty good until I learned from one of their lawyers, that the safety "projection" was based on a projected ROI of 12%. He rode my train in to the city and told me that in confidence. Didn't mean much to me then, but it has been fascinating to watch over the years.

 

[Big_Hitter]

This may be a little off-topic, but a case in point. A long time ago... 34 years, I learned how the Chicago Pension disasters began. At the time, Chicago's credit, was not considered to be as bad as it is today. The teachers retirement fund looked pretty good until I learned from one of their lawyers, that the safety "projection" was based on a projected ROI of 12%. He rode my train in to the city and told me that in confidence. Didn't mean much to me then, but it has been fascinating to watch over the years.

double digit expected rates of return were not uncommon 30+ years ago

 

[foxfirev5]

Thanks Imoldernu. I never realized I had one of these pensions prior to your post. Not life changing due to the small monthly payout but it makes me think. Yet one more reason to take SS ASAP. The old adage about a bird in the hand is not without merit.

 

[athena53]

MEPPs have been a mess for quite a while. I think the core problem is that a lot of the employers are out of business (many long ago) and the un/under-funded liabilities are accruing to fewer and fewer remaining companies. These are liabilities for other companies' employees. Not a good setup.

Yes. I live near YRC headquarters and they're a major trucking firm participating in a multi-employer plan. As you stated, the still-solvent employers are left holding the bag when other employers fold.

The crazy-high rates of return that imoldernu cited have been a perpetual problem. I used to hang out on an actuarial discussion board and this was a big topic among pension actuaries. It's good practice to use a long-term rate of return to smooth out results, but there's always been significant pressure from employers to allow rates that are unrealistically high, to make the valuations look good.

 

[Big_Hitter]

anyone else notice how much smaller the PBGC premiums are for ME (versus SE) and that ME doesn't have to pay a variable rate (risk-related) premium?