Why the Inconsistency?

Here is an update from the Pension Benefit Guarantee Corporation (PBGC) on the indexing of benefits.

Guarantee Limit: On October 22, 2018, PBGC announced that, as a result of the indexing rules provided in ERISA, the guarantee limits for single-employer plans that fail in 2019 will be 3.46% higher than the limits that applied for 2018.  A table showing the single-employer plan guarantee limits for various ages and payment forms is available on PBGC’s website.  The guarantee limits for multiemployer plans are not indexed and therefore have not changed. (10/22/2018)

Did you notice that participants in multiemployer plans get no increase because their plan limits are not indexed? How is that fair? Who was involved in that negotiation? Guarantee limits for multiemployer plans are roughly 1/5 (<$13,000 annually for a 30-year veteran) of those for participants in single-employer plans already.

This is almost as bad as having two different accounting methodologies for the discounting of plan liabilities (GASB/public and multiemployer plan’s for discounting liabilities and FASB/corporates). The use of GASB to discount liabilities has led to the persistent underfunding of these plans (lowers annual contributions), which has been one of the most critical variables in the funded status (poor) of both multiemployer and public plans.

IF FASB is good enough for Corporate America it should be just as good for public and multiemployer funds. I don’t care that U.S. cities are considered to be perpetual in nature. We’ve seen many examples of U.S. cities struggling financially, which has forced them to terminate DB plans in lieu of DC offerings. Perpetual doesn’t mean sustainable.

It would be wonderful if every DB pension system operated under the same rules and regulations, especially since the average corporation enjoys a more fiscally sound funded status.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s