PBGC deficit widens due to deterioration in multiemployer program

 

The Pension Benefit Guaranty Corporation (PBGC) has released its Annual Report, showing that the PBGC’s deficit increased to about $62 billion in Fiscal Year 2014, largely due to the declining condition of a few multiemployer plans. The financial condition of the single-employer program improved with a deficit of about $19.3 billion, down from $27.4 billion in the previous year.
The increase in the PBGC’s deficit in the Annual Report is consistent with the estimates included in the FY 2013 Projections Report (see Pension Plan Guide Newsletter, Report No. 2048, July 22, 2014). The FY 2013 Projections Report found that the insolvencies of a minority of multiemployer plans have become both more likely and more imminent.

Deficit in single-employer program declines

The deficit in the single-employer program narrowed to about $19.3 billion, down from $27.4 billion in 2013. The program insures the pensions of nearly 31 million workers and retirees in about 22,300 ongoing plans sponsored by private-sector employers.

The single-employer program’s potential exposure to future pension losses from financially weak companies was estimated at about $167 billion compared to about $292 billion last fiscal year. The condition of the single-employer program continues to improve, the PBGC said, because of a stronger economy, better market returns, and an $869 million increase in net premium income, largely because of legislative changes.

In FY 2014, the PBGC assumed responsibility for about 53,000 people in 97 trusteed single-employer plans.

Deficit for multiemployer program worsens

The PBGC’s multiemployer insurance program’s deficit rose to $42.4 billion, compared with $8.3 billion last year. The program’s increased deficit is largely due to the fact that several additional large multiemployer plans are expected to become insolvent within the next decade.
The multiemployer program insures the benefits of more than 10 million workers and retirees in about 1,400 plans. While the multiemployer program’s assets would meet the needs of the current inventory of insolvent plans, the PBGC said that assets are insufficient to cover benefits for plans expected to run out of money in the near future.

The PBGC estimated in its FY 2013 Projections Report that, absent legislative changes, the multiemployer program faces a greater than 50% chance of insolvency by 2022; that likelihood reaches 90% by 2025. The failures of these plans are expected to drain the PBGC’s multiemployer program of its assets, leaving the PBGC unable to pay guaranteed benefits. When the program becomes insolvent, the only funds available to support benefits will be the premiums that continue to be paid by remaining plans. This would result in benefits being cut much more deeply, to a small fraction of the PBGC’s guarantee level.

In FY 2014, the agency paid $97 million in financial assistance to 53 multiemployer plans covering 52,000 retirees.

Source: PBGC News Release No. 14-15, November 17, 2014.

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