Pension Benefit Guaranty Corporation’s single-employer
program is improving, but the funding crisis for multiemployer pension plans is
not, according to the agency’s fiscal 2013 projection report.
Recent figures indicate the fiscal 2013 deficit of $27.4
billion is projected to narrow to $7.6 billion by fiscal 2023. Last year, PBGC
estimated a deficit of $32.5 billion for fiscal 2022.
The report projects that the current $24.7 billion
single-employer deficit will shrink to $7.6 billion by 2023, and suggests that
the PBGC pension fund is “highly unlikely” to run out of money in the next
decade — giving credit to the improved market, rising interest rates and higher
PBGC premiums.
However, while economic conditions have improved
significantly in the past year and most multiemployer plans are projected to
remain solvent, the pension benefits of more than 10 percent of multiemployer
plan participants are at serious risk, the PBGC said.
Some already distressed plans remain critically underfunded
and will not be able to further raise contributions or reduce benefits
sufficiently to avoid insolvency, the agency notes. Using a new methodology
that takes this into account, PBGC’s current projections are showing that
insolvencies affecting more than a million of the 10.4 million people in
multiemployer plans are now both more likely and more imminent.
The failures of these plans will drain PBGC’s multiemployer
program of its assets, leaving PBGC unable to pay guaranteed benefits, and the
agency estimates that, absent premium increases and/or changes in law, the
program is more likely than not to run out of funds in eight years, and highly
likely to do so within 10 years.
The report notes several uncertainties about its
projections, including not knowing which plans will fail, plus its own premium
income and market returns on PBGC assets. The projections represent a range of
scenarios, from conservative to optimistic. The annual exposure reports, based
on actuarial evaluation, are required by law. PBGC officials say also they
intend to analyze how voluntary plan terminations by plan sponsors will impact
its premium base.
Global security and aerospace technology giant Lockheed
Martin announced it is freezing its current salaried-defined benefit pension
plan as it transitions its employees to an enhanced defined contribution
retirement plan.
“While there were many factors that were considered when
making this decision, most importantly is that eventually we would be required
to freeze the pension plan,” the company said Tuesday. “If we don’t freeze the
pension plan by 2020, current regulations would impose significant tax
penalties on our employees and the company. By proactively making this decision
now, it gives our employees time to plan for the changes.”
A spokeswoman adds, “Since we closed the pension plan to new
participants in 2006, we expect that by 2016, the majority of our employees
will not be pension participants. Introducing a unified retirement program
ensures that we’re offering consistent and competitive retirement benefits to
the majority of Lockheed Martin salaried employees.”
Source: Employee
Benefit Adviser
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