The Pension Benefit Guaranty Corp. (PBGC) has warned that its insurance program for multiemployer pension plans, which covers 10 million people, is likely to run out of money by 2026.
“The increasing demand for financial assistance from insolvent plans will accelerate the depletion of PBGC’s Multiemployer Program assets,” said the PBGC in its FY 2016 Projections Report. “The multiemployer insurance program is in serious trouble and is likely to run out of money by the end of fiscal 2025. If that happens, the people who rely on PBGC guarantees will receive only a very small percent of current guarantees– most participants would receive less than $2,000 a year and in many cases, much less.”
The projections report is PBGC’s annual actuarial evaluation of its future operations and financial status. The report provides a range of estimates of the future status of insured pension plans and their effect on PBGC’s financial condition.
In the report, the PBGC said that without any changes in law or additional resources, this year’s estimated deficit of $59 billion will increase, with the average projected deficit rising to almost $80 billion for fiscal year 2026.
Under the Multiemployer Pension Reform Act of 2014, multiemployer plans that project insolvency within the next 20 years must notify participants that the plan is running out of money.
“Over 1.2 million people are now in about 100 critical and declining plans,” said the report. “As these plans become insolvent, participants’ benefits will be reduced to the amounts guaranteed by the PBGC under current law. In a recent insolvency, this resulted in benefit cuts of more than half for over 40% of the plan’s participants.”
The report also said that the timing of the multiemployer program’s insolvency is uncertain as it depends on when the most troubled plans run out of money. According to the PBGC, the date a specific plan is projected to run out of funds depends upon how the pension plan investments perform, and on other decisions made by the plan’s trustees and participants.
“Most of the risk of the program running out of money falls during the years 2024 to 2026,” said the report. “It is more likely than not that the Multiemployer Program will deplete its assets by the end of fiscal 2025. The risk of program insolvency grows rapidly after 2025, exceeding 99% by 2036.”
However, the PBGC pointed out that the president’s FY 2018 budget contains a proposal to create a new variable rate premium, and an exit premium in the multiemployer program, which would raise an estimated additional $16 billion in premium revenue over the 10-year budget window.
Despite the troubles facing the multiemployer program, the PBGC said the financial condition of its insurance program for single-employer plans remains likely to improve over the next decade. Under current estimates, the program’s fiscal year 2016 deficit of $21 billion will likely turn to a surplus by the end of fiscal 2022.
“Projections for PBGC’s insurance program for single-employer pension plans, which covers about 28 million people, show that its financial condition is likely to continue to improve,” said the report. “The program is highly unlikely to run out of money in the next 10 years, and is likely to eliminate its deficit within the next three to seven years.”