PG&E Corp. sought to reassure its retirees on Monday that there will be no changes to their pension or medical benefits as a result of its planned Chapter 11 bankruptcy filing.
‚ÄúFor our retirees, we do not expect any changes to the Company‚Äôs tax-qualified pension plan or to health or life insurance benefits,‚ÄĚ it said on its website Monday.
PG&E has a defined benefit plan for union and nonunion workers that has various payout scenarios. Employees who joined after 2013 have what‚Äôs known as a cash balance plan; those who joined earlier had a choice of switching to the cash balance formula for future accruals or keeping with the original one. The plan is well funded, experts said.
Even if it weren‚Äôt, private-sector defined benefit plans ‚ÄĒ the old-fashioned type that promise a certain income in retirement ‚ÄĒ are guaranteed by the Pension Benefit Guaranty Corp. This is a federal agency funded by insurance premiums paid by companies that sponsor defined benefit plans and investment returns.
Sometimes when companies go bankrupt with an underfunded pension plan, the plan is terminated and taken over by the agency, which continues to pay benefits out of the fund‚Äôs assets and whatever it can recover from the company in bankruptcy court. If that‚Äôs not enough to pay all benefits employees have earned up until the termination, PBGC will make up the rest, up to a limit.
For a single-employer plan that failed in 2019, the limit for a 65-year-old is $67,295 per year for a single-life annuity. It‚Äôs higher for older retirees and lower for younger ones. It‚Äôs also lower if the person chooses an annuity that also covers a spouse.
When a plan is terminated, most employees ‚Äúare probably going to get all or most of their benefits, even if a plan is poorly funded,‚ÄĚ said Norman Stein, a law professor at Drexel University.
Not all companies that file for bankruptcy terminate their plans, and some struggling companies terminate their plans without going bankrupt.
There are various mind-boggling ways companies measure how well funded their pension plan is based on future benefit projections. They report different numbers in different filings. Depending on which numbers you use, PG&E‚Äôs plan is well funded or very well funded, pension experts say.
It is so well funded that it wasn‚Äôt required to put any money into the plan for at least the past three years, but contributed around $330 million per year anyway, according to annual reports filed with the Securities and Exchange Commission.
The company said Monday it ‚Äúcurrently intends to continue to make regular pension contributions to that plan as normal.‚ÄĚ
Utilities often have well-funded plans because the cost can be passed on to ratepayers, but the PG&E pension plan ‚Äúis unusually well funded,‚ÄĚ said Terrence Deneen, who was the PBGC‚Äôs chief insurance program officer until he retired in 2011. ‚ÄúI see absolutely no reason why the plan should terminate.‚ÄĚ
In its annual funding statement sent to employees for the year that started Jan. 1, 2017, the plan said its net assets equaled 107 percent of its liabilities, or 87.2 percent if you use a more conservative interest-rate assumption.
‚ÄúIf you are at least 80 to 85 percent, you are unlikely to be terminated,‚ÄĚ Deneen said.
For the year ended 2017, the plan had $16.65 billion in assets and $16.8 billion in accumulated benefit obligations, according to a different analysis in PG&E‚Äôs annual SEC report.
PG&E also provides health insurance benefits to retirees.
‚ÄúIt changes when they become Medicare eligible at age 65; they get a supplement,‚ÄĚ said Tom Dalzell, business manager of IBEW Local 1245, which represents about 12,000 PG&E employees.
Employee medical benefits are not covered by the PBGC, but the utility had $2.4 billion set aside at the end of 2017 to pay about $1.9 billion in projected retiree medical and life insurance benefits.
Dalzell said PG&E‚Äôs pension fund ‚Äúis very strong, as is their retiree medical fund.‚ÄĚ
Some of PG&E‚Äôs top executives are eligible for retirement benefits that are not part of its so-called tax qualified plan and not protected by the PBGC.
PG&E also emphasized that its 401(k) plan for employees would not be affected by a Chapter 11 filing.
‚ÄúThe assets in your 401(k) plan are not the Company‚Äôs ‚ÄĒ and are protected by U.S. federal law,‚ÄĚ it said. ‚ÄúRetirees would be able to continue to make qualified withdrawals under the usual guidelines.
‚ÄúAny change in the value of your 401(k) is due, as always, to fluctuations in the value of the securities you have selected to own.‚ÄĚ