Skip to main content

You are here

Advertisement

Good News on PBGC Programs’ Solvency

Government Affairs

In a marked turnaround, the Pension Benefit Guaranty Corporation (PBGC) reports that the solvency of both its insurance programs—the single-employer program and the multiemployer program—is improving. 

The report marks a continuation of the growing solvency of the single-employer program, but a change in the fortunes of the multiemployer program, whose solvency has been in decline and about which there have been dark projections. “The reports show a substantial improvement in the outlook for PBGC’s Multiemployer Insurance Program,” says the PBGC, 

The agency attributes the change to the enactment of the American Rescue Plan Act of 2021. “While future reforms would help improve the long-term health and resilience of the multiemployer system overall, ARP has provided a financial lifeline, and the effects of that are clear. The difference between these projection reports and reports from recent years is night and day; and that is great news for the millions of workers, retirees and their families who rely on the agency,” said PBGC Director Gordon Hartogensis in a press release.

But ARP was not the only reason for the improvement, says the PBGC; it also says that changes in recent economic data and assumptions, such as discount rates and asset returns, help explain it. 

Multiemployer Program 

The Multiemployer Program projections show a mean improvement in net financial position (i.e., the average of all the scenarios modeled) of $57 billion—from negative $63.7 billion, the actual reported net position on Sept. 30, 2020, to a projected negative $6.7 billion on Sept. 30, 2030. 

This, the PBGC says, is due primarily to the enactment of ARP, which is expected to result in the “unbooking” of liabilities for ongoing plans that had previously been booked as probable losses, and the deferment or avoidance of other potential insolvencies beyond the 2030 fiscal year (FY). Further says the report, the Special Financial Assistance (SFA) provided under ARP extends the solvency of eligible plans that were previously recorded as probable losses by more than 10 years. Now, says the PBGC, those plans are expected to be reclassified from probable losses in FY 2021. 

So dramatic is the turnaround, says the PBGC, that while the 2020 report estimated that the Multiemployer Program would probably run out of money in FY 2026, it no longer projects it to become insolvent in the 10-year projection period. Under most scenarios, it says, the SFA provided to eligible plans will forestall insolvency of the program for more than 30 years. 

There is a caveat, however: the report notes that plans’ future asset performance and plans’ contribution income, which are unknown, create uncertainty about whether and when the Multiemployer Program will run out of money. 

Single-Employer Program

On Sept. 30, 2020, the Single-Employer Program had a net position of $15.5 billion. The average result of the PBGC's stochastic projections under a wide range of economic scenarios shows that the net financial position will increase to an estimated $49.9 billion on Sept. 30, 2030. The PBGC also explains that the Single-Employer Program started on stronger ground than it had expected. In FY 2020, actual premium income and asset/liability gains exceeded mean projections in the FY 2019 Projections Report, and at the same time actual claims and expenses were slightly less than mean projections in that report. 

And the news just keeps getting better. As the net position of the Single-Employer Program continues to improve, says the PBGC, there is an even lower possibility of a return to a negative net position, even if there are very high claims. 

But as with the Multiemployer Program, the PBGC says that there are some caveats with the Single-Employer Program. It notes that existing underfunding is more acute in plans sponsored by companies with the highest risk of financial distress, and warns that any economic downturn increases both underfunding and the probability that claims will be made on the PBGC.

The PBGC elaborates that plans sponsored by employers with below-investment-grade credit ratings had an aggregate underfunding of $176 billion as of Dec. 31, 2019, per the PBGC’s FY 2020 Annual Report, up from $155 billion as of Dec. 31, 2018. This, it says, comprises “a significant portion of the estimated $560 billion of total underfunding in PBGC-insured single-employer plans based on 2018 Form 5500 filings.”