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PBGC’s Deficit Up 25% Last Year

The Pension Benefit Guaranty Corporation’s deficit grew by approximately 25% from 2014 to 2015, according to a new report from the Congressional Research Service (CRS). The report notes, however, that despite the bigger deficit and estimates of more to come, there is good news on the horizon as well.

In “Pension Benefit Guaranty Corporation (PBGC): A Primer,” a report by CRS Analyst in Income Security John Topolesk which the CRS issued on Nov. 3, the PBGC’s finances in 2015 were as follows:

Assets: $87.7 billion
Liabilities: $164 billion
Deficit: $76.3 billion

The PBGC’s main assets, says the CRS, are the value of its trust fund and revolving funds, which are comprised of:

  • the premiums plan sponsors pay to the PBGC;

  • transfers from the trust fund that are used to pay for participants’ benefits; and

  • returns on the revolving funds’ investments in U.S. Treasury securities.

The PBGC’s main liabilities are the estimated present values of (1) future benefits payments in the single-employer program and (2) future financial assistance to insolvent plans in the multiemployer program.

The 2015 deficit was $14.6 billion larger than in 2014. From 2004 to 2008, the PBGC deficit fell each year; ever since the Great Recession, it has grown annually.

Crystal Ball Not Entirely Cloudy

The CRS notes that the PBGC’s Fiscal Year (FY) 2015 projections estimate that the deficit of its multiemployer program is likely to worsen to such an extent that there is a 57% chance that it could run out of money in the next decade and almost a 100% chance of that happening by 2035.

The PBGC’s report further says that the agency’s probable exposure to future financial assistance to multiemployer plans would be just over $50 billion. “Premium levels are likely inadequate to provide continued financial assistance to insolvent multiemployer plans,” says the CRS, adding, “the financial assistance to these plans could exhaust PBGC’s ability to guarantee participants’ benefits. PBGC has indicated that once resources are exhausted in the PGBC’s multiemployer program, insolvent plans would be required to reduce benefits to levels that could be sustained through premium collections only.”

Nonetheless, the report points out a ray of hope. It notes that the Multiemployer Pension Reform Act of 2014 (MPRA) allows multiemployer plans that expect to become insolvent to reduce benefits to participants, and that plans that do so would not require PBGC assistance — which would reduce the amount of financial assistance it would expect to provide and improve its financial condition. It further notes that the PBGC estimates that the MPRA would likely slightly improve its estimated FY 2015 multiemployer plan program deficit.

And it adds that there’s good news regarding the PBGC’s single-employer program. The CRS says that program’s deficit is likely to shrink for the next eight years and then build a surplus. In fact, it notes that the average estimate of the PBGC’s simulations is that there will be a $2.6 billion surplus for that program within 10 years.