Benefits January 31, 2014

Americans Less Likely to Label Aging as Problem

January 31, 2014 (PLANSPONSOR.com) – Americans are not as likely to label aging as a major national problem compared with the citizens of other countries, a study finds.
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“Attitudes About Aging: A Global Perspective,” from the Pew Research Center, finds only one in four Americans believe the aging of the population is a serious issue for the country. The study finds those who think of aging as a major problem are likely to be older themselves. In the United States, older adults are twice as likely as young adults (34% vs. 18%) to say aging is a major problem.

Nearly one-quarter (24%) of U.S. respondents surveyed for the study are very confident they will have an adequate standard of living in their old age, while over one-third (39%) are somewhat confident. Related surveys conducted by Pew in 2009 and 2012 found an 11 percentage point drop in the number of Americans that they were very or somewhat confident of having enough income and assets to last throughout their entire retirement.

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Observing that overall economic growth, or lack thereof, can affect people’s confidence about their standard of living in old age, the study authors say, “If past is prelude, Americans are likely to become more confident of their future in retirement as the economy rebounds.” Study findings show 75% of Americans who see the national economy as good are confident about their own economic future, while only 58% of those who see the economy as bad are as confident about their personal economic future.

In addition, 77% of Americans who say their personal economic situation is good also are confident in their economic future. On the other hand, only 36% of Americans whose personal economic situation is bad are confident in their future standard of living.

The United States is one of a handful of countries whose respondents believe that responsibility for a secure retirement is up to an individual. When queried, 46% of Americans say it is up to the individual to provide for themselves during retirement, while 20% say it is the responsibility of their families and 24% say it is the responsibility of the government. The study also finds among those Americans who say retirement is either the responsibility of the family or the individual, 72% expressed confidence in a good standard of living during retirement. However, those who say retirement is the government’s responsibility expressed only a 44% confidence level about having a good standard of living during retirement.

According to the study, pension expenditures are not expected to rise as much in developed economies because these populations are currently aging at a less rapid pace and because many have implemented reforms that are expected to limit the growth of pension expenditures. The study notes that in the United States, the full retirement age of 65 has gradually been on the rise since 1983 and is scheduled to level off at age 67 for those born after 1959.

The study authors say countries with an older population but in which the aging has slowed, such as the United States, should experience relatively smaller increases in public pension expenditures. In the United States, public pension expenditures are expected to go from 6.8% of the gross domestic product (GDP) in 2010 to only 8.5% in 2050.

In terms of public health expenditures, the United States spent 6% to 7% of its national income on public health care in 2010. The United States is projected to go from spending 6.7% of its GDP in 2010 to 14.9% in 2050.

The study authors cite data from the U.S. Congressional Budget Office (CBO): “The CBO has estimated that aging is of concern in the mid-term but that health-cost inflation is the principal cause of long-term growth in health expenditures. More specifically, the CBO estimates that aging is responsible for 60% of the projected increase in health care spending between 2012 and 2037 and higher costs are responsible for 40%. However, beyond 2037, rising costs are expected to be the dominant factor.”

The authors point out that an increase in public expenditures on pensions and health care as a share of national income is not inevitable though, explaining, “Future improvements in technology and gains in productivity, containment of health-cost inflation and delayed retirements may generate sufficiently large countervailing forces to slow this growth in spending.”

More information about the study, including how to download the findings, can be found here.

Compliance January 31, 2014

PBGC Reviving Partition Authority Despite Limited Resources

January 31, 2014 (PLANSPOSOR.com) – For the third time in its history, the Pension Benefit Guaranty Corporation (PBGC) is using its authority to partition an insolvent employer’s participants from a multiemployer plan to boost the plan’s financial position.
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The agency announced the Bakery and Sales Drivers Local 33 Industry Pension Fund in Baltimore was slated to go insolvent following the bankruptcy filing of Hostess Brands, Inc. PBGC approved a request from the Bakery and Sales Drivers to separate 330 former Hostess participants from the plan, and pay PBGC guaranteed benefits so promised benefits for most of the plan’s members would remain intact.

During a press briefing, PBGC Director Joshua Gotbaum explained plans in this critical status have for years come to the agency saying they have adequate resources to pay for active employees, but do not have enough resources to pay for employees of companies that went out of business. The agency has the authority to take responsibility for those companies that have gone out of business, called partition ability, but until now has only used this authority twice—not because the agency does not want to help, but because its multiemployer program does not have adequate funds to do so. “So we have to tell these plans our program has a deficit, so we can’t help,” he said.

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However, according to Gotbaum, the agency has decided, even though it is clear it needs more resources, it will use its authority to help these plans. “We decided to do our job, despite the lack of money,” he added.

Speaking about the current negotiation to separate Hostess participants from the Bakery and Sales Drivers Local 33 Industry Pension Fund, Gotbaum said: “If we had adequate funds we could do this not just for plans with hundreds of participants, but for plans with hundreds of thousands of participants.”

A Cry for Help

In January 2012, Hostess Brands Inc. filed bankruptcy protection after failing to reach an agreement on pension and health benefits (see “Hostess Proposes Suspension of DB and MEPP Contributions”).  The Bakery and Sales Drivers Local 33 Industry Pension Fund had six contributors to the plan originally, but following other withdrawals and the Hostess bankruptcy it had one remaining contributor able to pay for its own employees, Sanford Rich, PBGC's chief of negotiations and restructuring explained during the press briefing. After determining the plan satisfied all requirements of the statute giving the PBGC partition ability, the agency took Hostess participants out the plan and put them into a new terminated plan. The current plan without these participants is solvent and expected to be solvent in perpetuity, Rich said.

However, since the plan had only one contributor left, the agency suggested the employer join another plan. The plan found another Teamster plan, the Milk Drivers and Dairy Employees Local Union No. 246 of Washington D.C. Pension Fund, and the two, along with the PBGC, negotiated a merger. The merged plan now has three contributors and about 1,100 participants, including the Hostess participants. Separating Hostess participants from the rest of the plan will enable the plan to avoid insolvency and preserve pension benefits for most of the plan's participants, the agency announced. “Merging the plans added multiple employer contributions, the strength of the multiemployer system, and lowered administrative costs,” Rich told the press.

Groups of Hostess participants exist in other multiemployer plans, but Gotbaum and Rich noted some of those plans are still financially sound despite the Hostess bankruptcy. There is one other outstanding request regarding a plan with a group of Hostess participants the agency is considering. In 2010, the agency took responsibility for pensions of Hostess employees from the American Bakers Assn. Retirement Plan, a multiple employer plan (see “PBGC Assumes Pension Liability for Bakery Workers”).

The last time the PBGC used its partition ability was in 2010, when it divided the Chicago Truck Drivers, Helpers & Warehouse Workers Union (Independent) Pension Fund into two separate plans (see “PBGC Divides Pension Plan to Delay Solvency”). The other time was in 1983.

According to Gotbaum, aside from more financial resources, the agency could help more plans if the statute for partition ability was amended. There are three hurdles to meet to be partitioned—one is the liability must be related to an actual bankruptcy. The PBGC can only use its authority if an employer withdrew from the plan because it filed Chapter 11 bankruptcy. “If Congress could redefine that into a broader category, we could use our partition authority more effectively,” he said. “If an employer withdraws because it liquidated, we can’t help. If it withdrew due to a geography change, we can’t help.”

In FY 2013, PBGC paid $89 million in financial assistance to 44 multiemployer pension plans covering the benefits of nearly 50,000 retirees. An additional 21,000 people in these plans will receive benefits when they retire. However, PBGC's multiemployer program premiums are far below the levels necessary to meet all obligations and the agency reported a net multiemployer deficit for FY2013 of $8 billion (see “PBGC Deficit Grows to $36B”).

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