PBGC Deficit Balloons Due to Multiemployer Program

The Pension Benefit Guaranty Corporation released its 2014 Annual Report, which shows the agency’s deficit increased to about $62 billion in fiscal year 2014, largely due to the declining condition of a few multiemployer plans. This is a 72% increase over the $36 billion deficit reported last year.

During a media call, agency officials said this deficit increase is not a surprise, as shown in its projections report issued in June (see “PBGC Foresees Increased Risks to Multiemployer Plans.”)

The deficit in the single-employer program narrowed to about $19.3 billion, down from $27.4 billion in 2013. The program insures the pensions of nearly 31 million workers and retirees in about 22,300 ongoing plans sponsored by private-sector employers. The single-employer program’s potential exposure to future pension losses from financially weak companies was estimated at about $167 billion compared to about $292 billion last fiscal year.

The PBGC said the condition of the single-employer program continues to improve because of a stronger economy, better market returns, and an $869 million increase in net premium income, largely because of legislative changes. Some premiums increased this year for single-employer plans, but no premium increases were made for multiemployer plans. The agency noted in its call that Congress sets premiums, and the agency has requested that Congress increase premiums for multiemployer plans and also that Congress allow the agency to set premium amounts.

PBGC’s multiemployer insurance program’s deficit rose to $42.4 billion, compared with $8.3 billion last year. The program’s increased deficit is largely due to the fact that several additional large multiemployer plans are expected to become insolvent within the next decade. In response to questions about what plans are pulling down the agency’s numbers, an official said the agency does not reveal plan names, only aggregate amounts. Another official noted that multiemployer plans are recovering in general, but there is a segment of plans that appears to be unable to solve its financial problems on its own.

The multiemployer program insures the benefits of more than 10 million workers and retirees in about 1,400 plans. When multiemployer plans fail, PBGC provides financial assistance so the plans can pay benefits at no more than PBGC’s statutory multiemployer benefit guarantee level. (Unlike the agency’s program for single-employer pensions, PBGC does not assume responsibility for the benefit administration of insolvent multiemployer plans.) While the multiemployer program’s assets would meet the needs of the current inventory of insolvent plans, assets are insufficient to cover benefits for plans expected to run out of money in the near future.

“We believe we have enough money to continue to provide financial assistance for several years, but over time, the risk of the [multiemployer] program running out of money increases. There is some risk within five years, and a more than 50% risk we will have run out of money in eight years,” one official said.

PBGC estimated in its FY 2013 Projections Report that, absent legislative changes, the multiemployer program faces a greater than 50% chance of insolvency by 2022; that likelihood reaches 90% by 2025. The failures of these plans are expected to drain PBGC's multiemployer program of its assets, leaving PBGC unable to pay guaranteed benefits. When the program becomes insolvent, the only funds available to support benefits will be the premiums that continue to be paid by remaining plans. This would result in benefits being cut much more deeply, to a small fraction of PBGC’s guarantee level.

“It is a work in progress, and PBGC has been ready and is ready to work with Congress to develop a comprehensive solution to help multiemployer plans and the PBGC multiemployer insurance program remain solvent,” an official said during the call.

In FY 2014, PBGC assumed responsibility for about 53,000 people in 97 trusteed single-employer plans, and it paid $97 million in financial assistance to 53 multiemployer plans covering 52,000 retirees.

The PBGC’s annual report is available at http://www.pbgc.gov/about/reports/ar2014.html

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