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:

Marsh Lesson for Pensioners

According to Xania News:

As a grocery chain is dismantled, investors recover their money. Worker pensions are short millions.

The unpaid pension debts mean that some retirees will get smaller checks. Much of the tab will be picked up by the government’s pension insurer, a federal agency facing its own budget shortfalls.

“They did everyone dirty,” said Kilby Baker, 70, a retired warehouse worker whose pension check was cut by about 25 percent after Marsh Supermarkets withdrew from the pension. “We all gave up wage increases so we could have a better pension. Then they just took it away from us.”

Let’s take a closer look.

Defined Benefit Demise Continues

According to Pension Benefit Guaranty Corporation (PBGC) data it is the eighteenth largest (by participant count) Single-Employer Defined Benefit Plan in the country and among the best funded. However, last week it came down:

Bristol-Myers Squibb Company (BMY) today announced it will transfer $3.8 billion of U.S. pension obligations through a full termination of its U.S. Retirement Income Plan (the “Plan”). The obligations will be distributed through a combination of lump sums to Plan participants who elect such payments, and the purchase of a group annuity contract from Athene Annuity and Life Company (“Athene”), a wholly-owned insurance subsidiary of Athene Holding, Ltd (ATH), for all remaining liabilities.

This transaction continues the Company’s pension de-risking strategy and actions, which began with the freezing of the Company’s U.S. Plan in 2009. This transaction reduces Bristol-Myers Squibb’s future risk and administrative costs while entrusting the pensions of Plan participants and their beneficiaries to a highly rated financial institution with expertise in the long-term management of retirement benefits.

Looking at their latest 5500 filing:

New PBGC Director Approved

With only a routine approval vote from the full Senate to step over Mitch McConnell’s brother-in-law is set to head the Pension Benefit Guaranty Corporation (PBGC) as announced last Thursday:

• Gordon Hartogensis [Heart-oh-gensis], to serve as Director of the Pension Benefit Guaranty Corporation.

• The Finance Committee has already approved Mr. Hartogensis 25-2, including the support from Ranking Member Wyden. He has extensive experience in financial planning, and his successful entrepreneurial experiences have equipped him to lead PBGC well.

Gordon Hartogensis will need more than “successful entrepreneurial experiences” to lead the PBGC through these minefields: