The Pension Benefit Guaranty Corporation (PBGC) recently released its annual projections report showing that its insurance programs, which back both multiemployer pension plans and single-employer pension plans, have experienced modest financial improvements since last year.
Multiemployer Plan Insurance Program
The PBGC’s insurance program for multiemployer plans is now expected to remain solvent until 2025. This marks a notable improvement over last year’s projections that the program would be insolvent by 2022. The program currently has a deficit of $42.4 billion which, according to the projections, will decrease to $28 billion (measured in present value) in fiscal year 2024. The improvement is a result of the increased premiums that are anticipated based on the passage of the Multiemployer Pension Reform Act of 2014 (MPRA). As discussed in our prior alert, MPRA increased PBGC premiums for multiemployer plans from $13 to $26 per participant. The projections also take into account new options under MPRA for multiemployer plans to reduce benefits and apply for partition or merger. The projections assume that certain plans will take advantage of these new options and require no financial assistance (or at least significantly reduced financial assistance) from the PBGC. The program is not out of the woods yet–the risk of its insolvency rapidly increases after 2025, reaching a 92% risk of insolvency by 2034.
Single-Employer Plan Insurance Program
Based on the PBGC’s projections, the insurance program for single-employer plans appears likely to improve financially over the next ten years. The program’s actual deficit for fiscal year 2014 is $19.3 billion, but, if the PBGC’s projections are accurate, that amount will shrink to $4.9 billion in fiscal year 2024 (measured in present value). Last year’s projections showed a deficit of $7.6 billion in fiscal year 2023.
Importance of PBGC’s Insurance Programs
The PBGC’s programs are extremely important to current and future retirees, as they protect the benefits of the more than 41 million Americans participating in private sector pension plans. In fiscal year 2014 alone, the PBGC paid $97 million to 53 different multiemployer pension plans covering 52,000 retirees and 23,000 workers. During fiscal year 2014, the PBGC paid $5.5 billion in benefits to 813,000 retirees in single-employer plans and will provide benefits to another 595,000 workers when they retire. Although the modest improvements described in this report are encouraging, continued efforts will be needed for the PBGC to remain solvent.