PBGC reports multiemployer program continues to face insolvency by 2025

The Pension Benefit Guaranty Corporation (PBGC) has issued its Fiscal Year (FY) 2017 Projections Report on the financial prospects of its pension insurance programs. Consistent with findings in last year’s Report, the multiemployer program is likely to become insolvent by the end of fiscal year (FY) 2025 without changes in the law or additional resources. The Agency’s single-employer pension program continues to improve and is likely to eliminate its deficit sooner than previously anticipated. The Projections Report, which is the PBGC’s actuarial evaluation of its future operations and financial status, is issued annually, as required by ERISA.

Multiemployer program

Multiemployer plans are typically much less well-funded than single-employer plans, according to the PBGC. The PBGC provides financial assistance to multiemployer plans when they run out of money so the plan can pay benefits up to the PBGC guarantee level and plan administrative expenses. Under the Multiemployer Pension Reform Act of 2014 (MPRA), the PBGC may also provide limited assistance prior to insolvency if a number of conditions are met.

According to the PBGC, 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 over 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%.

About 130 multiemployer plans covering 1.3 million people are expected to run out of money over the next 20 years, the PBGC says. Without legislative changes, more and larger claims on the multiemployer program will lead to the program’s insolvency. Projections made for FY 2027 show an average projected deficit of about $89.5 billion in future dollars, which is an increase of over $11.7 billion from last year’s projection for FY 2026. The PBGC explains that the insolvency risk and projected future deficits are very similar whether or not the PBGC assumes multiemployer plans will continue to adopt benefit reductions or partitions under the Multiemployer Pension Reform Act of 2014.

President Trump’s FY 2019 budget proposes to shore up the PBGC multiemployer program by creating a new variable rate premium and an exit premium, estimated to raise an additional $16 billion in premium revenue over the ten-year budget window.

Single-employer program

Projections for the Agency’s single-employer program, which covers about 28 million people, show better prospects for the program. The program’s financial position remains likely to improve over the next decade. Last year’s report projected the program could potentially emerge from deficit by FY 2018 and was likely to emerge by FY 2022. The PBGC states that 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 ten-year period are due to the general trend of better funding of pension plans and projected PBGC premiums exceeding projected claims, according to the PBGC.

Source: PBGC News Release No. 18-02.
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