PBGC Multiemployer Program Continues on a Path Toward Insolvency

On August 6, 2019, the Pension Benefit Guaranty Corporation (PBGC) released its projections report for fiscal year (FY) 2018 and here are what Milliman considers the key takeaways as regards the financial condition of the Multiemployer Program.

Breaking News: Trump’s PBGC Pick Confirmed

They couldn’t get it done in January but yesterday Gordon Hartogensis was approved by the Senate* to serve as director of the Pension Benefit Guaranty Corp by a vote of 72-27. To get an indication of what this could mean for a multiemployer plan bailout I looked at one vote:

PBGC Primer – 2018 Update

The update came out last week and in summary:

In FY2018, PBGC insured about 25,000 DB pension plans covering approximately 37 million people.  PBGC became the trustee of 58 newly terminated single-employer pension plans and began providing financial assistance to an additional 6 multiemployer pension plans.  PBGC paid benefits to 861,371participants in 4,919 single-employer pension plans and 62,300 participants in 78 multiemployer plans.

Last year’s primer had those numbers at:

24,000 DB pension plans covering approximately 40 million people….82 newly terminated single-employer pension….an additional 7 multiemployer pension plans….benefits to nearly 840,000 participants in 4,845 single-employer pension plans and more than 63,000 participants in 72 multiemployer plans.

So why the 4% increase in the number of Defined Benefit Plans but the 7.5% drop in participants?

PBGC Killing the Premium Goose

The Pension Benefit Guaranty Corporation (PBGC) is projecting that their multiemployer (union) program will be insolvent by 2025 but a possible bailout could keep it alive indefinitely whereas the PBGC’s Single Employer program just turned a profit primarily due to extortionate premiums that may eventually lead to its demise, as legislators were told yesterday by the head of the U.S. Government Accountability Office (GAO) in his written testimony (page 12):

Breaking News: PBGC To Take Over Sears Pensions

Per a press release this morning:

The Pension Benefit Guaranty Corporation [PBGC] is taking steps to assume responsibility for Sears Holdings Corporation’s two defined benefit pension plans, which cover about 90,000 people. The national retail chain headquartered in Hoffman Estates, Illinois, operates through its subsidiaries, which include Sears, Roebuck and Co. and Kmart Corporation.

Sears filed for Chapter 11 protection on October 15, 2018. PBGC is stepping in to become responsible for the company’s two pension plans because it is clear that Sears’ continuation of the plans is no longer possible.

PBGC has worked with Sears for several years to improve funding for the company’s plans. PBGC estimates that the Sears’ plans are underfunded by $1.4 billion leaving them 64 percent funded.

PBGC is seeking to terminate the plans as of January 31, 2019. The agency will become responsible for the pension plans when Sears agrees or a court orders plan termination.

This is the distress termination we were expecting:

# 1 Threat Facing the Global Economy Today

And according to Robert Kiyosaki the money-media is not covering it:
.

.

With some examples from around the world, it is….

What Stock Drop Means for Pensions

The 6% drop in the Dow in 2018 (from 24,834 to 23,327) could have been worse, according to CNBC, if not for pensions funds:
.

.
Even with the pension-fueled comeback last week, losses in 2018 will have repercussions since plans, in chasing returns, have increasingly moved into stock-related investments and were expecting to make, not lose, 6% in value annually.

What I expect: