Compliance June 1, 2018

PBGC Report Shows Dire Status for Multiemployer Plan Insurance Program

The likelihood the program will remain solvent after FY 2026 is now less than 1%.

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The Pension Benefit Guaranty Corporation’s (PBGC)’s Multiemployer Insurance Program continues to face insolvency by the end of fiscal year 2025, according to findings in the FY 2017 Projections Report.

The agency’s insurance program for multiemployer pension plans covers over 10 million people. The new projections show a narrower range of years for the likely date of insolvency of the Multiemployer Program. The likelihood that the Multiemployer Program will run out of money before the end of FY 2025 has grown to more than 90%, and there remains a significant chance the program will run out of money during FY 2024. The likelihood the program will remain solvent after FY 2026 is now less than 1%. The narrower range in the new projections is based on the most recent available data on troubled pension plans.

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Over the next decade, the financial condition of PBGC’s Multiemployer Insurance Program is expected to worsen. Projections made for FY 2027 show a wide range of potential outcomes, with an average projected deficit of about $89.5 billion in future dollars—an increase of more than $11.7 billion from last year’s projection for FY 2026. The insolvency risk and projected future deficits are very similar whether or not PBGC assumes multiemployer plans will continue to adopt benefit reductions or partitions under the Multiemployer Pension Reform Act of 2014.

About 130 multiemployer plans covering 1.3 million people are expected to run out of money over the next 20 years. Absent legislative changes, more and larger claims on the Multiemployer Program will lead to the program’s insolvency, the PBGC says. As insolvency nears, the specific year of insolvency becomes more predictable.

If the Multiemployer Program were to run out of money, current law would require the PBGC to decrease guarantees to the amount that can be paid from premium income, which would result in reducing guarantees to a fraction of current values. PBGC’s guarantee is the amount of retirement benefits that PBGC insures for each participant, which is capped by law. PBGC Director Tom Reeder recently told the Joint Select Committee on Solvency of Multiemployer Pension Plans that insolvency of the PBGC multiemployer program could result in participants in failed multiemployer plans receiving a very small fraction—an eighth or less, on average—of the current benefit guarantee level. In addition, the Society of Actuaries warns of ripple effects on the economy if many of these plans fail.

According to a PBGC announcement, President Donald Trump’s FY 2019 Budget contains a proposal to shore up PBGC’s Multiemployer Program. The budget proposes to create a new variable rate premium and an exit premium in the Multiemployer Program, estimated to raise an additional $16 billion in premium revenue over the 10-year budget window. The proposal includes a provision allowing for a waiver of the additional premium if needed to avoid increasing the insolvency risk of the most troubled plans.

On the other hand, PBGC’s Single-Employer Program, which covers about 28 million participants, continues to improve and is likely to emerge from deficit sooner than previously anticipated.

Last year’s report projected the program could potentially emerge from deficit by FY 2018 and was likely to emerge by FY 2022. The program forecasts have improved, with a larger chance of emerging from deficit by FY 2018 and emergence likely by FY 2019. The projections for FY 2027 show a wide range of potential outcomes, including the possibility for future deficits that could range in excess of $100 billion, but with an average positive FY 2027 net position of $26 billion in future dollars ($20 billion in today’s dollars). Improvements in the program’s financial position over the 10-year period are due to the general trend of better funding of pension plans and projected PBGC premiums exceeding projected claims.
Deals and People June 1, 2018

Retirement Industry People Moves

Capital Group Hires LDI Strategist; T. Rowe Price to Close Tampa Office in 2019; and Trinity Pension Consultants Promotes Consultant.

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Capital Group, in an effort to expand its liability driven investment (LDI) team, has added Colyar Pridgen as senior LDI strategist, based in Los Angeles. 

Prior to joining Capital, Pridgen was a senior LDI strategist at Standish Mellon Asset Management.  Before that, he was a consultant and actuary at Willis Towers Watson. Pridgen obtained his bachelor’s degree in economics from Cornell University.  He is a credentialed actuary (FSA, EA) and also holds the Chartered Financial Analyst designation. 

Gary Veerman, head of LDI Solutions at Capital Group, says, “We are very happy to have Colyar joining our team at Capital Group.  Colyar’s experience and background make him an ideal addition to our growing LDI business.  Companies are looking for LDI managers with leading fixed income platforms and an understanding of complex, long-term pension issues and our LDI team is growing with those priorities in mind.”

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“I am very pleased to be joining Capital Group given its stellar reputation in the institutional space,” says Pridgen. “Capital Group’s fundamental credit research approach and LDI implementation experience are what plans will continue to need as they expand their LDI programs, and I greatly look forward to helping grow our presence.”

T. Rowe Price to Close Tampa Office in 2019 

T. Rowe Price Group announced that it will not be renewing its office lease in Tampa, Florida, and plans to close its Tampa Operations Center in June 2019, consolidating into the firm’s two other sites servicing individual investors and retirement plan participants. The remaining locations are owned multi-building campuses in Owings Mills, Maryland, and Colorado Springs, Colorado.

According to the company, the decision was made after careful consideration and responds to a growing client preference to engage digitally after the firm saw success in its digital transformation and technology innovations.

Currently, about 400 associates work in the Tampa office, with the majority in phone support and other client service roles. Approximately 30 associates with assigned client relationships, including regional relationship managers and members of the retirement plan employee meeting team, will remain in the area working remotely. All other associates are being encouraged to consider relocation by pursuing roles at other sites. The firm continues to hire in Maryland and Colorado and also plans to transfer approximately 220 positions from Tampa to these locations. Given ongoing efficiency efforts and through the site consolidation, the firm ultimately expects that approximately 150 positions will not be replaced during this period. The firm will provide associates with appropriate resources and dedicated transition support.

“This strategic business decision was difficult because of the significant impact it will have on our Tampa associates,” says William J. Stromberg, president and CEO. “We are grateful for the many contributions they have made to our clients, the firm, and the community. By sharing this news well in advance we hope to provide them with ample opportunity and support to plan for the transition.”


Trinity Pension Consultants Promotes Consultant

Trinity Pension Consultants, Ohio’s largest third-party administration (TPA) firm focusing exclusively on qualified retirement plans, announced the promotion of Thomas Carline to regional retirement plan consultant for all of its Cincinnati, Ohio, and Kentucky clientele. 

Carline has served as a Trinity retirement plan consultant since 2013, most recently as the lead consultant for the Kentucky market. Based in Louisville, Kentucky, he will continue to serve this territory while also spending time in Trinity’s Mason, Ohio, sales office. 

“Tom has provided key strategic recommendations on complex cases nationwide,” says Kevin Bergdorf, Trinity principal and founder and author of “The Cash Balance Conversion.” Bergdorf, who spearheaded the firm’s expansion into Kentucky in 2014, adds, “He is a creative problem-solver with experience in all aspects of the qualified retirement plan space. Tom will be a true asset to Cincinnati business owners and financial advisers alike.”

Prior to Trinity, Carline worked as a financial adviser and an investment consultant at the Kemelgor Financial Group and PNC Investments, respectively. He holds a B.S. in Finance from The Ohio State University and is a current member of the American Society of Pension Professionals & Actuaries.

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