By Pension and Benefits Editorial Staff
The Pension Benefit Guaranty Corporation (PBGC) has released the findings of its Fiscal Year (FY) 2018 Projections Report, and it paints a distressing picture. The PBGC multiemployer insurance program continues on the path to running out of money by the end of fiscal year 2025, according to the report. This program covers the pensions for more than 10 million people.
The news, however, is much better for the PBGC’s single-employer insurance program, which covers about 26 million participants. This program continues to improve—last year it emerged from a negative net position or “deficit” for the first time since 2001. Continued future improvement is expected, but not assured; the program still remains vulnerable to an unexpected downturn in the economy.
The projections report, required under ERISA, is the 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 the PBGC’s financial condition, based on hundreds of different economic scenarios.
Multiemployer program projections. The PBGC said that unless there are changes in law, the financial condition of the multiemployer insurance program will continue to worsen over the next decade. About 125 multiemployer plans covering 1.4 million people are expected to run out of money over the next 20 years. More and larger claims on the multiemployer program over the next few years will deplete program assets and lead to the program’s insolvency by the end of FY 2025.
Moving projections out to FY 2028, the Agency found a wide range of potential outcomes, with an average projected negative net position of about $90 billion in future dollars ($66 billion in today’s dollars).
What if the program runs out of money? If the multiemployer program were to run out of money, current law would require the PBGC to decrease guarantees to the amount that can be paid from multiemployer program premium income. The PBGC said that this would result in reducing guarantees to “a fraction of current values.” The PBGC’s guarantee is the amount of retirement benefits that the agency insures for each participant, which is capped by law.
Help may be on the way. The PBGC noted that President Trump’s FY 2020 Budget contains a proposal intended to shore up the PBGC’s multiemployer program. The proposal would create a new variable rate premium and an exit premium for the multiemployer program, which would raise an additional $18 billion in premium revenue over the ten-year budget window. The proposal includes a provision permitting waiver of the additional premium, if necessary, to avoid increasing the insolvency risk of the most troubled plans.
Single-employer program. The projection for the single-employer program shows that continued improvement is expected, but with a wide range of potential outcomes. The program remains exposed to a considerable amount of underfunding in plans sponsored by financially weak employers, the PBGC said. Plans whose sponsors’ credit quality is below investment grade have unfunded liabilities of about $175 billion.
The projected ten-year average net position has improved slightly compared to last year’s report but with little change in the variability, according to the PBGC. The Agency’s future financial condition is sensitive to economic conditions, and, thus, it runs its projections using a wide range of economic scenarios. The average projected net position for FY 2028 is a positive $37 billion in future dollars ($27 billion in today’s dollars). Projected improvements in the program’s financial position over the ten-year period are due to a general trend of better funding of pension plans and projected PBGC premiums exceeding projected claims.
SOURCE: PBGC News Release No. 19-09.
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