The US Pension Insurer (PBGC) May Soon Become Insolvent

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Another Financial Nightmare On The Horizon – The US Pension Insurer (PBGC) May Soon Become Insolvent by Charles M. Tatelbaum, Tripp Scott PA

It may be hard to believe in today’s environment of increased scrutiny over governmental and private insurers, but the Pension Benefit Guaranty Corporation (PBGC), (similar to the FDIC for federally insured bank accounts) which is the governmental body created to insure the nation’s pension funds, is on the verge of insolvency.  Based on recent developments and the PBGC’s publications, current and future retirees may fall victim to a horrific nightmare.

The PBGC insures both private and multi-employer pension funds in case of the pension funds are underfunded and/or the employer(s) are unable to fund the pension account (such as when the employer becomes bankrupt).  Multi-employer funds were set up for many pension funds created by collective bargaining agreements to have one pension fund for similar employers.

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In March of this year, the PBGC published a report showing that its multi-employer plan program faces a 43% likelihood of insolvency within 10 years if the current level of per participant premiums, which are indexed, remain in place.  Furthermore, that likelihood rises to 93% within 20 years, assuming that none of the plans suspend benefits or receive financial assistance, the agency reported.  This was further exacerbated by the recent statement by the Central States Pension Fund,  one of the nation’s largest multi-employer pension funds, that it is out of ideas for ways to save itself from an impending failure.  After the Treasury Department rejected Central States’ Pension Fund final proposal, which would have substantially cut benefits for some retirees, the Central States Pension Fund now has stated that it has little choice but to turn to a federal insurance program that is supposed to offer a lifeline to troubled pension funds (which will further substantially deplete any PBGC funds).

This is not a simple issue of mismanagement of the pension funds. Many pension funds had relied on continued high interest creating substantial returns on investments in order to meet actuarial expectations, and after the Federal Reserve Board has keep interest at record lows, the pension funds have nowhere to look for safe returns. One must add to the equation the increasing number of large Chapter 11 filings for energy companies and retailers which has created an unexpected shortfall in funds available for present and future pension distributions. Lastly, the PBGC’s cries for Congressional assistance to permit it to increase the premiums charged to employers for the pension insurance protection have been ignored.

The PBGC multiemployer program currently protects more than 10 million workers and retirees in about 1,400 pension plans set up under collective bargaining agreements. For multiemployer plans, the PBGC had previously been permitted to charge a per participant rate for flat-rate premium of $26. That rose to $27 in 2016.  It appears uncontroverted that the current premium of $27 per employee is insufficient to fund the PBGC multi-employer needs, and that is before consideration is given to the Central States Pension Fund disaster as well as the proliferation of large and high-profile bankruptcy proceedings.

Senator Bernie Sanders, supported by several other Democratic Senators, have been pushing legislation to try to remedy this situation and to have the senate consider it before the summer recess, but those efforts appear to be futile and falling on deaf ears by the Republican-controlled legislature.  If Congress does not deal with remedial legislation to try to deal with the issues, the crisis will reach a zenith soon.

The ultimate solution may then be a taxpayer bailout. If that occurs, it could be a bailout of astronomical proportions, with the extent of the cost to taxpayers unable to be determined for decades until the increasing shortfalls are remedially remedied.  As each day goes by with Congress putting its collective head in the sand, the point of PBGC insolvency for the multi-employer fund becomes exponentially greater.  This may soon be a nightmare that becomes a reality.

About Charles Tatelbaum

Charles M. Tatelbaum is a Director of Tripp Scott law firm, PA and chair of the bankruptcy and creditors’ rights department focuses his practice on bankruptcy and creditors’ rights issues, complex business litigation, Uniform Commercial Code transactions and lender liability litigation and other types of secured transactions, as well as domestic and international letters of credit.

He regularly represents secured and unsecured creditors in transactions and insolvency situations, creditors’ committees, and throughout the United States he represents business clients in complex business litigation, the defense of lender liability claims, all types of bankruptcy proceedings and products liability defense based on warranty. He also represents secured and unsecured creditors in distressed business transactions and litigation. He has also has represented clients in Chapter 9 municipal bankruptcy proceedings and Chapter 15 foreign bankruptcy proceedings.

As an example, he represented the major motor vehicle floor plan lender in the largest motor vehicle dealer bankruptcy in U.S. history, recovering more than $150 million, which constituted payment in full of principal, interest, attorney fees and costs. In that case, the court awarded a $300,000 substantial contribution fee to the represented lender. As another example, he has represented the lender in the worldwide bankruptcy proceeding of Saab Automobiles, and was able to obtain payment in full of all principal, interest and attorneys’ fees. As of a result of his prior work with the U.S. State Department in eastern Europe to develop bankruptcy laws in Croatia and Slovakia, Mr. Tatelbaum has regularly handled business and insolvency issues that develop in foreign countries.


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