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PBGC’s Insurance Programs Continue To Face High Deficits

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PBGC’s Insurance Programs Continue To Face High Deficits

Annual Performance Report

Congress established the Pension Benefit Guaranty Corporation (PBGC or the Corporation) 41 years ago to insure the pension benefits of workers and retirees who work for private-sector employers. Today, PBGC protects the retirement security of more than 40 million workers and retirees in private defined benefit pension plans.

The Employee Retirement Income Security Act of 1974 (ERISA) created two insurance programs to be administered by PBGC: single-employer and multiemployer. These programs are operated and financed separately. PBGC encourages the continuation of defined benefit pension plans and provides pension benefits for retirees and beneficiaries in failed plans.

The agency has three overarching strategic goals:

  • Preserve plans and protect pensioners;
  • Pay pension benefits on time and accurately; and
  • Maintain high standards of stewardship and accountability.

This annual performance report details the agency’s operations, measurements of success, and progress in achieving our goals.

Operations In Brief

PBGC strengthens retirement security by preserving plans and protecting pensioners. The agency guarantees payment of the basic pension benefits earned by more than 40 million American workers and retirees in nearly 24,000 plans. Since 1974, PBGC has become responsible for almost 1.5 million people in nearly 4,800 failed single-employer and multiemployer plans, and it made benefit payments of $5.7 billion in FY 2015. To preserve plans and protect pensioners in FY 2015, the agency:

  • Helped to protect 16,000 people by encouraging companies to keep their plans when they emerged from bankruptcy;
  • Negotiated almost $563 million in financial assurance to protect more than 116,000 people in plans at risk from corporate events and transactions; and
  • Conducted compliance reviews of plan sponsor calculations for plans that end through a standard termination, resulting in almost 1,500 participants receiving corrected benefit amounts totaling $5.8 million.

To pay timely and accurate benefits in FY 2015, the agency:

  • Assumed responsibility for more than 25,000 people in 65 trusteed single-employer plans;
  • Started paying benefits to almost 37,000 retirees in single-employer plans; and
  • Paid $5.6 billion to almost 826,000 retirees from more than 4,700 failed single-employer plans (an additional 560,000 workers will receive benefits when they retire).

To maintain high standards of stewardship and accountability in FY 2015, the agency:

  • Achieved an unmodified financial statement audit opinion;
  • Closed 78 audit recommendations issued by the Office of the Inspector General; and
  • Continued to provide outstanding service to retirees, as demonstrated by a Retiree Customer Satisfaction Score of 91.

PBGC’s Insurance Programs – Strategic Goals And Results

This annual performance report provides information on PBGC’s performance in achieving the three goals outlined in the agency’s strategic plan. Performance results for FY 2015 are detailed below.

Goal #1: Preserving Plans And Protecting Pensioners

PBGC engages in activities to preserve plans and protect pensioners. The agency administers two separate insurance programs. The single-employer program protects about 30 million workers and retirees in over 22,000 pension plans. The multiemployer program protects over 10 million workers and retirees in about 1,400 pension plans. PBGC’s 2014 Projections Report provides information on the condition of both insurance programs.

This year, the single-employer program:

  • Monitored 1,500 companies for financial transactions that potentially posed risks to the financial viability of plans;
  • Protected pensioners whose plan sponsors were in bankruptcy; and
  • Ensured that participants received the law’s full protection in both distress and voluntary plan terminations. The 2015 maximum guarantee of $60,136 will remain the same in 2016.

This year, the multiemployer program:

  • Paid $103 million in financial assistance to 57 multiemployer pension plans covering the benefits of 54,000 retirees over the past year;
  • Became responsible for the future payment of benefits to an additional 25,000 people when they retire; and
  • Performed 26 multiemployer plan audits to protect the benefits of more than 36,000 people.

PBGC, along with plan sponsors and other ERISA agencies, strives to find solutions to improve plans’ financial health and protect workers and retirees covered by the plans.

PBGC's Insurance Programs

Multiemployer Program

Assistance to Multiemployer Plan Sponsors

PBGC provides technical assistance to multiemployer plan professionals regarding difficult interpretation issues arising under Title IV of ERISA. One way that PBGC supports multiemployer plan sponsors is by allowing flexibility in the employer withdrawal liability rules. In FY 2015, PBGC approved an alternative method for determining allocable unfunded vested benefits, as well as alternative terms and conditions for satisfaction of withdrawal liability for a troubled plan.

Multiemployer Plan Mergers and Transfers

Plan mergers can be a way to help protect people’s benefits in multiemployer plans. In general, the mergers can broaden a plan’s contribution base, reduce administrative and investment expenses for small plans, and rescue troubled plans from projected insolvency. Similarly, transfers of assets and liabilities between plans, often followed by a plan merger, can have a healthy impact for all plans involved. Such transfers may result in steady or improved funding to help sustain the plans in the future. In FY 2015, PBGC processed 12 plan mergers and three transfers of assets and liabilities. These transactions did not relate to new provisions under the Multiemployer Pension Reform Act of 2014 (MPRA), discussed below.

Protecting Pensioners In Multiemployer Plans

PBGC monitors all multiemployer plans that request or receive financial assistance. The agency performed 26 audits of multiemployer plans that cover more than 36,000 people and identified 118 findings. The chief objective of these audits is to ensure:

  • Timely and accurate payment of benefits to all plan participants;
  • Compliance with applicable regulations; and
  • Effective and efficient management of the assets remaining in terminated plans.

The Multiemployer Pension Reform Act of 2014

In FY 2015, PBGC published an interim final regulation on partition of multiemployer pension plans to implement the partition provisions of the Multiemployer Pension Reform Act of 2014 (MPRA). Before MPRA, PBGC could authorize partitions only in situations involving the bankruptcy of one or more of a plan’s contributing employers. The benefits of participants who had service with those employers were reduced to PBGC-guaranteed levels.

Under the new rule, certain plans that are projected to run out of money within 20 years may ask PBGC to approve a partition (“critical and declining” plans). A partition will transfer responsibility for paying some participant and beneficiary monthly guarantee amounts from the plan to PBGC, relieving plans of some of their financial obligations. This allows plans to preserve benefits for participants at levels above the PBGCguaranteed amounts and continue to pay retirement benefits over the long term. For a plan to be eligible for partition, plan trustees will have to show that they took all reasonable measures to avoid insolvency. Measures generally will include applying to the Treasury Department for approval to reduce participant benefits to 110 percent of the PBGC-guaranteed level (except for age-protected and disability-protected benefits).

In addition, MPRA expanded PBGC’s ability to facilitate the merger of two or more plans. A merger may proceed if the transaction is in the interests of participants and beneficiaries of at least one of the plans, and if the merger is not reasonably expected to adversely affect the overall interests of participants and beneficiaries of any of the plans involved. In certain circumstances, PBGC may be able to provide financial assistance to facilitate a merger if the merger would avoid or postpone the insolvency of one or more critical and declining plans and if other requirements are met. PBGC expects to publish a proposed rule on facilitated mergers in December 2015.

PBGC’s ability to approve partitions or facilitate mergers will be limited by its financial resources. The agency must certify that providing help to a particular plan does not impair its ability to meet existing financial assistance obligations to participants in other troubled plans.

In addition, MPRA increased the premium rate for multiemployer plans to $26 per participant, beginning in 2015, and indexed thereafter. Total multiemployer premiums for the year that ended September 30, 2015, were $212 million, up from $122 million in 2014.

PBGC's Insurance Programs

Single-Employer Program

Protecting Pensioners When Plans Are At Risk

PBGC monitored more than 1,500 companies to identify transactions and events that potentially posed risk to the people covered under their pension plans. The agency reviewed more than 100 transactions, and, where appropriate, arranged for suitable protections to safeguard participant benefits. Some examples include:

  • PBGC reached an agreement with Safeway Inc. for a one-time contribution of $212 million to its pension plan following the acquisition of Safeway by AB Acquisitions LLC through a leveraged buyout. This contribution is estimated to improve the plan’s funding level to at least 80 percent and protect almost 54,000 participants.
  • PBGC reached an agreement with Gannett Co., Inc., in connection with the spin-off of its publishing business from its broadcasting and digital businesses. The publishing business retained most of the pension liabilities. Under the agreement, Gannett made a one-time $100 million contribution to its largest pension plan and the publishing business will contribute $140 million to the pension plan over the next six years. These contributions will improve the pension plan funding levels and protect more than 43,000 participants.
  • PBGC negotiated an agreement with Sears – subject to definitive documentation to be completed in FY 2016 – that helps protect the Sears pension plan, its more than 200,000 participants, and the pension insurance program. Sears will provide meaningful protection in the form of asset retention and shielding.

Additionally, each year PBGC receives distress termination applications and identifies abandoned plans. These situations may signify a plan’s financial difficulty and often result in plan terminations or settlement agreements. In FY 2015, PBGC worked with approximately 12 plan sponsors to achieve more favorable outcomes for them and participants, including the continuation or standard termination of the associated plans.

Protecting Pensioners Whose Plans End in Bankruptcy

PBGC takes an active role in bankruptcies to protect the interests of employees and retirees in the plans. The agency works to prevent unnecessary terminations and to obtain the maximum possible financial recovery when a plan must terminate. For example, the four plans in the Revstone-controlled group covered more than 1,900 people and were significantly underfunded when the company filed for bankruptcy in 2012. After allegations of fiduciary breach and mismanagement were made against Revstone’s management through DOL-initiated litigation, PBGC stepped in. The agency successfully terminated the pension plans and in FY 2015 reached a settlement under which PBGC will recover the vast majority of the pension plans’ underfunding.

Protecting Pensioners in Standard Terminations

A company can end a fully funded plan in a standard termination by paying all the benefits it owes. In FY 2015, almost 1,350 plans, covering approximately 250,000 participants, filed standard terminations. The standard termination of these plans will have a minimal effect on PBGC’s premium income. While the number of standard terminations is consistent with past years, more large plans filed this year, including H. J. Heinz, 21st Century Fox America, Hannaford Brothers, Sunoco, Samsonite and Fluor Corporation. Other large plans such as Motorola Solutions Inc., Herman Miller and Equilon Enterprises LLC (doing business as Shell Oil Products US) completed previously filed standard terminations.

PBGC conducted over 260 standard termination audits. As a result, almost 1,500 people in these plans will receive an additional $5.8 million in benefits. Occasionally, PBGC’s audit findings are contested. For example, Royal Oak Enterprises, LLC and Kentucky Bancshares sued in U.S. district court to challenge PBGC’s audit findings that they had inappropriately decreased benefits. PBGC successfully defended the standard termination and audit processes in each case.

Significant Litigation

PBGC works to protect America’s pensions in complex civil, appellate and bankruptcy cases in federal and state courts nationwide. Some examples of decisions include:

  • In Cox Enterprises Inc. v. News-Journal Corporation, the U.S. Court of Appeals for the Eleventh Circuit affirmed an order providing PBGC with full payment of its $13.9 million claim for News-Journal’s pension underfunding. PBGC had been litigating with Cox Enterprises, a minority shareholder of News-Journal, over the proceeds from News-Journal’s liquidation. The Eleventh Circuit’s decision confirmed that under state law, PBGC was entitled to receive full payment on its claim before Cox received any payment for its News-Journal stock.
  • PBGC successfully defended its actions as the post-termination trustee of the US Airways Pilots Plan. After protracted litigation, the U.S. District Court in D.C. found that PBGC had met the prudent person standard required of trustees under ERISA. The U.S. Court of Appeals for the D.C. Circuit later affirmed this decision.
  • PBGC determined that Kentucky Bancshares underpaid participants in a standard termination by adopting a post-termination date plan amendment that reduced the amount of lump sum payable to participants. The U.S. District Court for the Eastern District of Kentucky ruled in favor of PBGC, accepting its view that the law established a floor for valuing lump sums and agreeing that the tax code does not prohibit a sponsor from paying a larger benefit if required by another statutory provision or a plan term. The U.S. Court of Appeals for the Sixth Circuit affirmed the decision.

PBGC's Insurance Programs

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