PBGC Issues Projections on Multi- and Single-Employer Programs’ Solvency

The Pension Benefit Guaranty Corporation (PBGC) has good news and bad news. The good news: It projects that its single-employer program will be solvent throughout the entire decade. The bad news: Its multiemployer program could be insolvent by 2026. 

In its recently released “FY 2019 PBGC Projections Report,” the PBGC projects that the single-employer program will remain above water financially through 2029. There is a flicker of good news about the multiemployer program: Last year, the PBGC had predicted the multiemployer program to be insolvent in 2025; now, says the PBGC, that program is very likely to be insolvent during fiscal year (FY) 2026. Still, says the report, “The Multiemployer Program continues to report large deficits (i.e., negative net positions), which, without legislative changes, are expected to grow over time.” It adds for good measure that its insolvency is “a near certainty” by the end of FY 2027.

Single-Employer Program

The program covers pension plans that generally are sponsored by a single private-sector employer and covers about 25 million participants in about 24,000 pension plans.

The report includes the caveat that the PBGC anticipates growing uncertainty regarding the PBGC’s net financial position as time passes; it attributes that to uncertainty concerning future claims, premium income and investment returns on the portion of PBGC assets not matched to PBGC’s benefit liabilities.

But for now, at least, there is good news: the PBGC reports that between by FY 2019, its net financial position was more than three times higher than in FY 2018, improving from $2.4 billion to $8.7 billion. This net financial position includes assets of $128.1 billion and liabilities of $119.4 billion for the single-employer program at the beginning of the projection period. The PBGC attributes the improvement largely to lower claims and higher premiums than expected; in addition, updated single-employer plan data has resulted in claims and premiums being projected at higher levels than one year ago. The overall result, says the report, is an improvement in the projected net financial position of $5.2 billion.

And the report projects a positive balance for the single-employer program in the 2020s. In FY 2029 it expects that the single-employer program will have: 

• new claims of $15.2 billion;
• premiums received of $46.8 billion
• a mean projected present value net financial position of $46.3 billion, an increase of $19.6 billion from the comparable numbers in the FY 2018 report; and
• in terms of the expected future value—the nominal value—a mean projected net financial position in FY 2029 of $57.7 billion.

Multiemployer Program

The PBGC’s Multiemployer Program is projected to run out of money by the end of FY 2026. This is one fiscal year later than was projected in the FY 2018 Projections Report; the PBGC attributes this short-term improvement to the enactment of legislation to provide federal funding for the United Mine Workers Plan. 

Even so, the report says that out of approximately 1,400 insured multiemployer plans, 124  say they will run out of money within 20 years. When that happens, they will call on the PBGC to provide financial assistance to enable the plan to pay benefits at the guarantee level. 

The FY 2019 net financial position for the multiemployer program was –$65.2 billion. The deficit is expected to grow in the future and the uncertainty around the financial position increases, as reflected in the report’s widening cone of results, the PBGC notes. 
This year’s mean projected net financial position for FY 2029 is –$82.3 billion (expressed as a present value (PV) as of Sept. 30, 2019). 
Further, says the PBGC, if the FY 2029 mean net financial position of negative $82.3 billion is expressed in the nominal value, as of Sept 30, 2029 it would stand at –$100.7 billion. 

The PBGC bases the expectations regarding the worsening of the deficit to a “considerable decline” in the projected investment returns on plan assets and the discount rate used to value the liabilities. Further, it expects that more multiemployer plans will become insolvent and need financial assistance.