Mixed Projections for PBGC Single-Employer, Multiemployer Programs

By John Iekel • June 01, 2018 • 0 Comments
The Pension Benefit Guaranty Corporation (PBGC) expects that its insurance programs will have sharply different results. In its FY 2017 PBGC Projections Report, which provides long-term financial projections for its single-employer program and multiemployer program, the PBGC anticipates that the former will continue to strengthen and even reach a surplus, and faster than it had thought; in the meantime, the latter will have quite an opposite result.

Single-Employer Program

The PBGC says that it expects that the financial status of the single-employer program, which covers approximately 28 million participants in more than 22,000 plans, “is likely to improve faster and reach a higher net surplus position compared to the projections from last year.”

More precisely, the PBGC says that there is now a higher chance that the single-employer program will no longer have a deficit by fiscal year (FY) 2018. And the picture is rosier still: the agency says that due to recent increases in asset returns and decreases in expected future claims, the program is likely to emerge from its deficit by FY 2019, three years earlier than it had said in the 2016 Projections Report.

And the 2017 report says it is more likely that the single-employer program will reach a net surplus years faster than it had projected earlier.

Multiemployer Program

The glass may be more than half full for the single-employer program, but the situation is very different for the multiemployer program, which the FY 2017 report says “continues to report deficits much larger than those of the single-employer program.” It adds that it expects the multiemployer program deficits “to grow, in nominal dollars, over time.”

The FY 2017 report offers at least a grain of good news. It says that there still is a significant change the multiemployer program will run out of money before 2024. Nonetheless, it says the risk of insolvency for the program is slightly lower before FY 2024 than it had projected in the 2016 report.

But that’s where the good news ends. The 2017 report says that for the multiemployer program, there is “a very high likelihood of insolvency during FY 2025.” How high? It says that the likelihood “has grown to over 90 percent.” Worse, the 2017 report says there is a “near certainty” of insolvency by the end of FY 2026. The likelihood it will be solvent after FY 2026? The PBGC puts that at less than 1%. The PBGC attributes these sobering projections “primarily to the largest troubled plan transitioning to a 100% fixed-income portfolio,” which it says “eliminates most of the uncertainty of the timing of its projected insolvency date and thus eliminates most of the uncertainty about when the plan will require PBGC financial assistance.”

So what happens if the multiemployer program runs 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.

The federal FY 2019 budget contains a proposal to shore up the multiemployer program through the creation of a new variable rate premium and an exit premium which it projects would raise $16 billion more in premium revenue over a decade. The proposal also would allow a waiver of the additional premium, if it is needed in order to avoid increasing the insolvency risk of the most troubled plans.

The Projections Report is the PBGC’s annual actuarial evaluation of its future operations and financial status. It provides a range of estimates of the future status of insured pension plans and their effect on PBGC's financial condition, based on hundreds of different economic scenarios.