The Pension Benefit Guaranty Corp. paid more than $5.4 billion to 842,000 retirees in terminated single-employer pension plans in fiscal year 2014, according to new data released this week.
Those liabilities were funded, in part, by increased premiums. Sponsors paid $3.8 billion in premiums in 2014, up from $2.9 billion in 2013 and a record amount of premium revenue for the agency.
Rising premiums, in accord with workers' longer life expectancies, will continue to increase defined benefit plan sponsors' liabilities, and motivate a continued trend in pension de-risking, according to a recent Aon Hewitt survey.
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Nearly two-thirds of the employers surveyed said they plan to take some action in 2015. Almost half — 44 percent — said they already have offered terminated employees a lump-sum payout.
For context, premiums paid in 2014 were more than double what sponsors paid in 2009. PBGC insures the defined benefit private-sector pension plans of 22,344 plan sponsors, with 30.9 million enrollees.
The $5.4 billion in benefits paid out is about level with the benefits PBGC has paid out since 2010. There were 51 trusteed plan terminations in 2013, compared to 101 in 2012 and 188 in 2009. Since 1975, when the Employee Retirement Income Security Act established PBGC, 4,557 plans have terminated.
Most of the plans taken over by PBGC in 2013 were smaller in nature—24 held between $1 million and $9 million in assets, and 12 held less than $1 million in assets. Three plans held between $100 million and $999 million.
Over the span of its existence, 68 percent of the plans PBGC has taken over held less than $1 million in pension assets.
Pension funding levels were tragically depleted for plans that came under PBGC stewardship in 2013: 18 were less than 25 percent funded; and 16 terminated plans had funding levels between 26 and 49 percent.
And most of the terminated plans had fewer than 100 participants, with 14 plans having less than 25 beneficiaries, and 15 plans having between 26 and 99. Two terminated plans in 2013 had between 5,000 and 10,000 participants.
The average monthly payment in 2013 to individuals was $539, compared to the highest monthly average payment of $598 in 2009. About 2 percent of beneficiaries received more than $2,500 in monthly payments, and about 50 percent received less than $300, while 18.5 percent received less than $100.
The 2015 maximum guarantee for a 65-year old retiree is $5,011, or about $60,136 annually.
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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.
