A Look at the PBGC in FY 2023—Actuarially Speaking

More than 900,000 participants of terminated plans were receiving benefits from the Pension Benefit Guaranty Corporation (PBGC) by the end of fiscal year (FY) 2023, says the agency in its FY 2023 annual report. 

The Fiscal Year 2023 Annual Report of the Pension Benefit Guaranty Corporation (PBGC)—which covers the federal fiscal year 2023, Oct. 1, 2022-Sept. 30, 2023—contains a summary of the results of the Sept. 30, 2023 actuarial valuation of its activties. It is intended to provide greater detail concerning the valuation of future benefits than the PBGC's Annual Report does.

More precisely, the PBGC says that by the end of FY ’23 it provided approximately 932,000 participants from terminated single-employer plans and multiemployer pension plans established before the enactment of the Multiemployer Pension Plan Amendments Act (MPPAA). It also was providing benefits to 86,000 participants in post-MPPAA plans that are insolvent and to 42,000 participants in terminated and ongoing plans that are expected to receive financial assistance. 

The PBGC says that the average monthly benefit it paid through the Single Employer Program for participants in pay status during FY 2023 was $548, including supplemental benefits. The average monthly benefits it paid through the Multiemployer Program in the 10 pre-MPPAA plans was $111. 

Single-Employer Program

The PBGC reports that the single-employer program’s liability as of Sept. 30, 2023, consisted of:

• $73.8 billion for the 5,119 plans that have terminated; and 
• $668.1 million for two probable plans terminations and for plans not yet identified as probable terminations.

The liability for "probable terminations" reflected reasonable estimates of the losses for plans that are likely to terminate in a future year, and for plans not yet identified as probable terminations. These estimated losses were based on conditions that existed at the end of the fiscal year. 

The PBGC calculated the single-employer program's liability for benefits for each of the terminated plans and for each of the plans considered to be a probable termination using one of three methods: (1) seriatim at fiscal year-end (FYE); (2) seriatim at date of plan termination (DOPT), adjusted to FYE; and (3) nonseriatim.

Multiemployer Program 

The multiemployer program’s liability as of Sept. 30, 2023, consisted of: 

• less than $500,000 for 10 pension plans that terminated before MPPAA enactment and of which PBGC is trustee; 
• $1.622 billion for estimable post-MPPAA losses due to financial assistance to 90 multiemployer pension plans that are currently receiving PBGC assistance; and 
• $589 million for probable estimable post-MPPAA losses due to financial assistance to 33 multiemployer pension plans that were probable to receive PBGC assistance in the future.

There were 10 pre-MPPAA terminations, nine of which were granted discretionary coverage under the provisions of ERISA as passed in 1974. The remaining plan terminated when coverage under Title IV was mandatory (from August 1, 1980, until Sept. 25, 1980). The PBGC calculated the liability for these 10 terminations under the seriatim at FYE method using the same assumptions as for the single-employer program.

The post-MPPAA portion of the liability represented the present value, as of Sept. 30, 2023, of net losses that PBGC expected to incur from nonrecoverable future financial assistance to 123 pension plans, of which 90 were insolvent and 33 were expected to become insolvent. The liability for each plan was calculated (using the cash flow method) as the present value of future guaranteed benefit and expense payments, net of the present value of future employer contributions and withdrawal liability payments. This liability was determined as of the later of Sept. 30, 2023, and the actual or projected date of insolvency, and then discounted back to Sept. 30, 2023, using interest only. The most recent available actuarial reports and information provided by representatives of the affected plans served as the basis for the valuations.

Projected benefit payments were estimated based on liabilities, current benefit payments and estimated average ages for actives, terminated vested and retirees from the most recent actuarial reports, combined with assumptions of retirement ages and of future rates of mortality and termination. Projected expense payments were estimated as a constant percentage of the projected benefit payments; this percentage is equal to the ratio of current expense payments to current benefit payments. The projected date of insolvency was then established using a cashflow model with initial assets, expense payments, contributions, and projected benefit and withdrawal liability payments as inputs, estimated when necessary.

The post-MPPAA liability of $2.211 billion as of Sept. 30, 2023, is approximately $179 million lower than it was for FY 2022. This is mainly because of the change in interest factors and the expected assistance for insolvent plans.

Data Sources and Assumptions 

Seriatim. The seriatim portion of the valuations were based on participant data the PBGC’s Office of Benefits Administration maintained. For the seriatim liability, benefit amounts were determined for each participant using plan documents, together with ERISA and PBGC regulations relating to guaranteed benefits and the allocation of assets. If specific data were not available for deferred vested participants under the seriatim method, participants were assumed to be married and to elect the qualified Joint and Survivor (J&S) benefit; wives were assumed to be four years younger than their husbands. When certain other data elements for a participant were missing, they were replaced by the average for the plan. When the plan average was not available, the average for all plans valued seriatim was used.

Nonseriatim. The nonseriatim liability was based on the plan's most recent actuarial valuation performed before the termination date that is available to PBGC. The valuation information generally was obtained from actuarial reports or Schedule SB or MB filings. For nonseriatim plans and probable terminations, the PBGC generally reduced benefits to guaranteed levels. 

For single-employer plans valued nonseriatim, the attained ages for active participants, terminated vested participants, and retired participants were assumed to be 55.1, 55.6 and 70.9 respectively when plan data were unavailable. For post-MPPAA Multiemployer plans that are terminated, the assumed age for terminated vested is 55. For ongoing plans, the assumed age for terminated vested is 54. For insolvent plans, the assumed age for terminated vested participants is 57. If there are any active participants, the assumed age is 47 when plan data were unavailable.