The Pension Benefit Guaranty Corporation (PBGC)’s multiemployer insurance program, which covers over 10 million people, remains in “dire financial condition,” and has not veered from its trajectory to become insolvent by the end of fiscal year 2025, according to the agency’s latest projections report.
“This year’s projections for PBGC’s Multiemployer Program continue to show a very high likelihood of insolvency during FY 2025, and that insolvency is a near certainty by the end of FY 2026,” said the PGBC in its report.
The PBGC also said that about 125 of the 1,400 multiemployer plans that it insures are in critical and declining status, and will be unable to raise contributions sufficiently to avoid insolvency during the next 20 years.
The projections report, which is required by the Employee Retirement Income Security Act (ERISA), is the PBGC’s annual actuarial evaluation of its future operations and financial status. The report provides estimates of the future status of insured pension plans and their effect on PBGC’s financial condition, and is based on hundreds of different economic scenarios.
“Absent changes in law, the financial condition of PBGC’s Multiemployer Insurance Program will continue to worsen,” said the PBGC. “More and larger claims on the multiemployer program over the next few years will deplete program assets and lead to the program’s insolvency.”
Meanwhile, the PBGC’s projection for the single-employer program, which covers approximately 26 million participants, shows that it continues to improve, but remains exposed to “a considerable amount of underfunding in plans sponsored by financially weak employers.” Plans whose sponsors’ credit quality is below investment grade have unfunded liabilities of approximately $175 billion.
The agency also said the single employer program emerged from a negative net position or “deficit” last year for the first time since 2001. However, while the program is expected to continue to improve, it is “not assured, and the program remains vulnerable to an unexpected downturn in the economy,” said the PBGC.
If the multiemployer program runs out of money, current law would require PBGC to decrease guarantees to the amount that can be paid from the multiemployer program’s premium income. The PBGC said this would result in cutting guarantees to a fraction of current values.
The PBGC noted the president’s fiscal year 2020 budget contains a proposal to shore up the multiemployer program. The budget proposes to create a new variable rate premium and an exit premium for the program, and would raise an additional $18 billion in premium revenue over the 10-year budget window. The proposal includes a provision allowing for a waiver of the additional premium if needed to avoid increasing the insolvency risk of the most troubled plans.
“At this level of premium receipts, the program is projected to remain solvent over the next 20 years,” said the budget report.
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Tags: Insolvency, PBGC, Pension