Compliance July 22, 2024

PBGC Single-Employer Insurance Fund Tracking for $71.6B Surplus in 2033

What’s more, the Pension Benefit Guaranty Corporation’s multiemployer fund should remain solvent for at least 40 years.

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The Pension Benefit Guaranty Corporation projects lasting solvency for both its single and multiemployer pension insurance systems, per a projections report released on July 19.

The PBGC maintains two insurance programs, one for single employer defined benefit plans and another for multiemployer funds. The programs are funded by premiums. For 2024, single employer plans pay $101 per participant and $52 per $1,000 of their unfunded vested benefits. Multiemployer plans pay $37 per participant and do not have a variable rate premium.

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According to the report, the single employer plan will remain solvent over the next 10 years, even in the most cynical and dire of economic and market simulations: “Even under the most extreme downside economic scenarios, the single-employer program does not fall into deficit during the projection period.”

The single employer program currently has a net surplus of $44.6 billion, and this is expected to grow to $71.6 billion by October of 2033.

The projection for the multiemployer fund was also positive, but not as significantly. The projection period for the multiemployer program is 40 years, and the fund remains solvent over that time period in 61% of projections. However, the most pessimistic projection shows the fund becoming insolvent as early as 2037.

The report credits grants through the federal Special Financial Assistance Program for the health of the multiemployer fund. In the absence of the SFA Program, which gives cash grants to struggling multiemployer plans to shore up their solvency through 2051, the multiemployer fund, which otherwise would have had to fund them, would have become insolvent in 2026.

John Lowell, a partner in pension consulting firm October Three, says the report is “so positive for the single employer program that PBGC has sought out suggestions that might even include changes to the premium structure in order to encourage the adoption and continuation of more private sector pensions. [The] PBGC might consider proposing that premium levels be decreased and perhaps provide additional decreases for certain plan designs that inherently represent lower risk to PBGC,” such as risk-sharing pensions.

Lowell also notes that for the multiemployer fund, “the projections are highly volatile” because it is harder to forecast economic conditions for the industries, and therefore the employers, represented in multiemployer plans.

Compliance July 22, 2024

DOL Announces Online Filing for Abandoned 401(k) Plans

The online system launches shortly after the DOL amended a rule to include Chapter 7 bankruptcies.

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The Department of Labor has launched an online system for qualified plan termination administrators to “more efficiently” submit abandoned account information for benefits, including 401(k)s.

The DOL’s Employee Benefits Security Administration announced the new system Friday to help administrators meet requirements under its Abandoned Plan Program. That program, started in 2006, allows benefit distributions to be made to participants and beneficiaries of retirement plans that have been abandoned by sponsoring companies. In 2024, the administration extended the program to companies in Chapter 7 bankruptcy, an extension that went into effect July 16.

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The new system is designed to improve efficiency in administering abandoned plan benefits, which have previously only been done by email and paper-based communication.

“The online system now offers a user-friendly, one-stop platform that qualified termination administrators can use to submit information needed by our Abandoned Plan Program,” said Lisa Gomez, assistant secretary for employee benefits security, in a statement. “This new tool will facilitate plan terminations and benefit distributions to the hard-working people owed these funds.”

The Chapter 7 amendments permit trustees and their designees to select and pay themselves for services in connection with terminating and winding up bankrupt companies’ retirement plans, EBSA noted.

The American Retirement Association submitted a comment letter on July 16 to the DOL’s EBSA, calling for further amendments to the Abandoned Plan Program. While the advocacy group generally championed the changes, it made the case for further changes to two areas.

First, it argued that it is too restrictive to state that only a plan asset custodian who has served as a bankruptcy trustee within the previous five years is eligible; the ARA requested that EBSA expand eligibility to anyone who can appear before the bankruptcy court handling the case.

Second, the ARA took exception to the rule’s $2,000 threshold for delinquent contributions to be administered by a trustee. The ARA noted that a terminated plan’s service providers will continue charging administrative fees, even when a plan is abandoned, which can make the claims significantly more expensive than the base amount. The advocacy group recommended that the DOL “revise the rule to provide that delinquent contributions are de minimis if the trustee reasonably determines the realizable value of those contributions is less than the estimated cost of filing a liquidated proof of claim.”

Revision of that rule would “promote efficient termination of plans and reduce the ultimate fees participants must pay while balancing the legitimate interest of ensuring plans obtain independent representation when such representation is likely to add value to participants,” the ARA argued.

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