Data & Research June 4, 2018

Workers Are Comfortable, Yet Concerned Over Stock Market

An Allianz Life study found that while there was an increase in comfort with the market, workers continue to worry about their retirement savings. 

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Despite reactions to extreme market volatility conditions in 2018, American workers are gaining a sense of comfort with the market, at least according to a recent Allianz Life Insurance study.

The study, conducted in April, found that 35% of the 800 employees surveyed say they are “comfortable” with the current market conditions—an increase from the 26% who said the same in 2015. However, the recent volatility in the markets is still affecting workers, with 37% admitting it is increasing their anxiety over nest eggs. Even more alarming, if an additional major drop in the market were to cause an extreme monetary loss, 38% of respondents do not believe they could rebuild their retirement savings.

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“Volatility matters, and while we see some increasing comfort with volatility, it is driving a simmering anxiety in many Americans,” says Paul Kelash, vice president of consumer insights for Allianz Life. “This anxiety about the negative effects volatility can have on their retirement savings is very real, and people are still searching for the right solutions.”

Allianz Life says there is an upsurge in the desire for savings protection. Fifty-seven percent of Americans say they would forego possible gains in exchange for a solution that protects a portion of their retirement savings, and 31% say that within five to 10 years of retirement, they would invest in a financial product that offers a balance of potential growth (up to 10%) and some level of protection (no loss of money if the market falls 10%).

Allianz Life says this growing interest for security stems from potential market volatility in the future. Forty-two percent of Americans are still nervous about a big market crash, and 44% fear a major recession.

This fear was not unanticipated, either. In early February, the Dow fell nearly 3,000 points, causing unusually extreme trading activity among American workers shortly thereafter. 

Due to this fear, Americans are gaining interest in financial products that provide growth potential and protection, says Kelash.

According to Allianz Life, the desire for this type of solution is even more pronounced for wealthier Americans, as 78% of respondents with over $200,000 in investable assets believe they should devote savings towards a financial product that secures their money. Sixty-eight percent of wealthier Americans would also sacrifice potential gains for a tool that protects a portion of their retirement savings.

“As market volatility becomes a more constant part of our financial landscape, Americans are recognizing the value of options that provide both opportunity and a level of protection,” says Kelash. “Because we can’t be certain when the next major downturn will occur, it’s important that people have the ability to grow their retirement savings while still safeguarding their financial future.”

Compliance June 1, 2018

PBGC Multiemployer Insurance Program May Fold Within the Decade

Over the next decade, the financial condition of PBGC’s Multiemployer Insurance Program is expected to steadily worsen, leaving very little chance that the program will remain solvent beyond the next decade.

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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.

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