The Pension Benefit Guarantee Corp. will pay the retirement benefits of more than 1,400 current and future retirees of Interfaith Medical Center, a 287-bed hospital in Brooklyn, N.Y.
The news Thursday comes amid a brewing battle on Capital Hill that pits PBGC against a coalition of private defined benefit plan sponsors and trade associations resisting proposed increases to the premiums they pay to guarantee pensions.
Interfaith Medical sought Chapter 11 protection on Dec. 2, 2012. The hospital sponsored two defined benefit plans for its workers, its Health Services Retirement Plan and Interfaith Medical Center Nurses Pension Plan.
According to PBGC estimates, the plans collectively held $108 million in assets against $176 million in liabilities. That 64 percent funding level is markedly lower than the national average of corporate-sponsored DB programs. The aggregate funding status of the 100 largest DB plans in the country improved to 95 percent at the end of last year, up from 74 percent in 2009, according to Milliman Inc.
Interfaith Medical was unable to meet minimum funding requirements. To date, the shortfall in its contribution payments is about $13 million. The inability to cover minimum contributions ultimately forced the hospital system into bankruptcy.
Eight clinics run by Interfaith Medical support Bedford-Stuyvesant, Crown Heights and other lower-income communities in Brooklyn.
The retirement plans were officially terminated on May 22. PBGC will pay all benefits earned by retirees up to the legal limit of $55,840 for a 65-year old. Retirees will continue to receive benefits without interruption, and future retirees can apply for benefits as soon as they are eligible, the PBGC said.
PBGC receives no government funding. Its revenues are derived from premiums paid by nearly 26,000 DB plans, liquidated assets from failed plans, and investment income. It’s net premium revenues totaled $2.7 billion in 2012.
Its single-employer program protects 33 million enrollees in about 24,000 plans, and the multi-employer program protects 10 million enrollees in about 1,500 plans.
When a single-employer plan fails, PBGC takes responsibility for directly paying retiree benefits. With multi-employer plans, the agency provides the needed financial assistance for plans to continue paying retirees themselves.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
