Multiemployer Gap Drives Up Pension Insurer’s Deficit
The Pension Benefit Guaranty Corp. (PBGC) said its deficit increased to $23 billion at the end of fiscal 2010, a 5% increase over the $22 billion deficit recorded in 2009, and more than half of that increase was attributed to a growing gap in multiemployer plans, according to the 2010 PBGC Annual Report.
The overall 2010 numbers were an improvement from the previous year, when the PBGC’s combined deficit increased nearly 97%—from approximately $11.2 billion to almost $22 billion.
The report for the fiscal year ending Sept. 30, 2010, said the deficit for multiemployer plans increased to $1.436 billion—65% more than the $869 million deficit at the end of fiscal 2009. The deficit on single-employer plans, which still account for most of the combined deficit, rose a more modest 2.5% to $21.6 billion, up from $21.1 billion the previous year.
According to PGBC Director Joshua Gotbaum, the deterioration in health of multiemployer plans is fairly recent, and the agency’s exposure to losses from these types of plans could grow sharply in years to come.
“For decades, multiemployer plans were in relatively good health, even in the face of industry decline,” Gotbaum said in his message in the annual report. “Unfortunately, for many multiemployer plans, that is no longer true. By FY 2010, many multiemployer plans had become substantially underfunded.”
Gotbaum’s message in the report said that as of the end of fiscal 2010, the PBGC estimated it could face possible future obligations of $20 billion to multiemployer plans. He said the agency would focus on taking steps necessary to help preserve these plans.
At the end of fiscal 2010, the fund for multiemployer plans had $1.6 billion in assets against obligations of $3.06 billion. Overall, the PBGC has $79.5 billion in combined assets to cover obligations of $102.5 billion. Most of those obligations ($90 billion) include the present value of future benefit payments.
The report says the PGBC has enough assets to “meet its obligations for a significant number of years. However, neither (the single-employer nor multiemployer) program at present has the resources to fully satisfy PBGC’s obligations in the long run.”
The report said the PBGC collected $2.3 billion in premiums from covered pensions and earned $7.8 billion on investments (12.1% return), but that was outweighed by an $11.5 billion increase in total obligations (which includes benefits payments that will be paid over decades). Combined benefit payments to participants increased to $5.56 billion from $4.56 billion in 2009.
During fiscal 2010, the PBGC terminated 147 underfunded single-employer plans. The 147 plans had an average funded ratio of approximately 54%. Their terminations resulted in an aggregate net loss to the PBGC of $1.44 billion.
More from the JofA:
