Moody’s: PBGC Likely to Go Broke by 2025

The ever-increasing premiums intended to close a growing deficit could ultimately push the insurer over the edge.

The Pension Benefits Guarantee Corporation (PBGC) could become insolvent in the next 10 years, Moody’s has warned.

The PBGC announced last week its multiemployer insurance program deficit is already through the roof, with shortfalls jumping by $10 billion to $52 billion for the year ending September 2015.

However, the credit ratings agency argued the planned premium increases to cover the climbing deficit would only exacerbate the problem, culminating with plan sponsors becoming unable to afford premiums, and the PBGC running out of money.

Moody’s reported that PBGC premiums, which have increased by nearly 340% over the last eight years, reduce sponsors’ annual free cash flow by more than $270 million.

As a result, there is more than a 50% chance of insolvency by 2025, the PBGC estimated, with a 90% chance of becoming insolvent by 2031.

Moody’s labeled this deficit growth “credit negative” for plan sponsors, warning that it pointed to an overall worsening trend in multiemployer pension performance.

Russell Investments’ Chief Research Strategist Bob Collie also wrote last week that funded status for most corporate plans changed little in 2015—but that it is still “too soon” to gauge the impact of further increases to PBGC premiums.

The Committee on Investment of Employee Benefit Assets (CIEBA), however, has already labeled premium hikes a threat to both pensions and the PBGC itself.

“Raising the premium rates will only hurt the agency by forcing more employers to consider exiting the system,” said Deborah Forbes, executive director of CIEBA, earlier this month.

Following the recent passage of the federal budget deal, PBGC premiums for single-employer corporate pensions are set to increase to $68 per person for 2017. This increase will be followed by further hikes to $73 and $78 per person in 2018 and 2019, respectively.

Related: The ‘Vicious Cycle’ of PBGC Hikes & CIEBA Labels Premium Hikes a Threat to PBGC, Pensions