The Pension Benefit Guaranty Corporation (PBGC) recently issued a press release announcing that the Multiemployer Insurance Program remains in a dire financial condition, nearing insolvency. The agency’s insurance program for multiemployer pensions, covering more than 10 million people, will likely run out of money by the end of fiscal year 2025, according to the FY 2018 Projections Report. On the other hand, the PBGC’s projection for the Single-Employer Program shows continued improvement. However, these positive projections are subject to a range of potential outcomes due to the Program’s sensitivity to economic conditions.
Without changes in the law, the financial conditions of the PBGC’s Multiemployer Insurance Program will continue to worsen over the next 10 years. Approximately 125 multiemployer plans, covering 1.4 million people, are predicted to run out of money within the next 20 years. An increase of larger claims submitted to the Multiemployer Insurance Program will exhaust the program assets and lead to the program’s insolvency by the end of FY 2025. If the Multiemployer Program runs out of money, current law requires the PBGC to decrease guarantees to the amount that can be paid from the Multiemployer Program premium income. The PBGC’s guarantee is the amount of retirement benefits that the PBGC insures for each participant, which is capped by law. As a result, the guarantees would be reduced to a fraction of current values.
The President’s FY 2020 Budget proposes to create a new variable rate premium and an exit premium for the Multiemployer Insurance Program, raising an additional $18 billion in premium revenue over the 10-year budget window. The proposal includes a provision that permits a waiver of the additional premium to avoid increasing the insolvency risk of the most troubled plans.
The PBGC’s Single-Employer Insurance Program, covering approximately 26 million participants, continues to improve and last year arose from a deficit for the first time since 2001. Continued improvement is expected, although it is not certain because the program is vulnerable to a downturn in the economy. The Single-Employer Program is exposed to a substantial amount of underfunding in plans sponsored by employers who are financially weak. The average projected net position for FY 2028 is $37 billion in future dollars ($27 billion in today’s dollar). The PBGC’s projected improvements in the Program’s financial position result from better funding of pension plans and the projection that in the future PBGC premiums will exceed projected claims.