PBGC Multiemployer Program Deficit Nearly $60 Billion

The Pension Benefit Guaranty Corporation (PBGC) released its Fiscal Year 2016 Annual Report showing the deficit in its multiemployer insurance program rose to $58.8 billion.

The increase was driven by additional multiemployer plans that are expected to run out of money within the next 10 years, and by decreases in interest factors used to value PBGC’s liabilities.

PBGC’s single-employer insurance program showed improvement; its deficit narrowed from $24.1 billion, at the end of FY 2015, to $20.6 billion at the end of FY 2016. This was primarily due to investment and premium income and a low level of plan terminations during the year.

As of September 30, 2016, PBGC’s single-employer program had liabilities of $117.9 billion and assets of $97.3 billion, resulting in a negative net position or “deficit” of $20.6 billion. In FY 2016, the agency paid $5.7 billion in benefits to nearly 840,000 retirees from more than 4,700 failed single-employer plans. The figures are up slightly from $5.6 billion paid to about 826,000 retirees during the previous year.

During FY 2016, PBGC assumed responsibility for more than 46,000 additional people in 76 trusteed single-employer plans. As in recent years, however, PBGC did not incur any large losses from completed or probable plan terminations.

“The improvement in the financial condition of the single-employer program is a welcome result. However, it is clear that more reform is needed to stabilize multiemployer pension plans and to extend the solvency of PBGC’s multiemployer program,” says PBGC Director Tom Reeder. “First and foremost, we need to protect the promises that have already been made to workers and retirees. We are committed to working with Congress on long-term solutions that include increasing multiemployer premium revenues and reforming the premium structure.”

As of September 30, 2016, PBGC’s multiemployer program had liabilities of $61 billion and assets of only $2.2 billion, resulting in a negative net position or “deficit” of $58.8 billion, up from $52.3 billion a year earlier. During FY 2016, PBGC provided $113 million in financial assistance to 65 insolvent multiemployer plans, an increase from the previous year of $103 million paid to 57 plans. PBGC’s obligations to provide financial assistance will increase dramatically in the coming years, when more and larger multiemployer plans run out of money and require PBGC assistance to provide benefits at the guarantee level set by law.

PBGC’s multiemployer program income is very small relative to its deficit, and to the increase in its liabilities during FY 2016. Income for the multiemployer program totaled $425 million, comprised of $282 million in premium revenue and $143 million in investment income. In contrast, multiemployer program liabilities increased by $6.8 billion. This was primarily due to a drop in interest factors used to measure the value of PBGC’s future financial assistance payments, and the identification of 11 additional multiemployer plans that terminated or are projected to run out of money within the next 10 years.

In the most recent Projections Report, PBGC estimated that its multiemployer program is likely to run out of money by the end of 2025, and that there is considerable risk that it could run out before then. If the multiemployer insurance program becomes insolvent, PBGC will only be able to provide enough financial assistance to pay a small fraction of guaranteed benefits in insolvent plans.

PBGC's financial statements are prepared in accordance with generally accepted accounting principles in the U.S. For FY 2016, PBGC received an unmodified audit opinion on its financial statements as well as an unqualified audit opinion on internal control over financial reporting. CliftonLarsonAllen LLP performed the audit under contract with PBGC’s Office of Inspector General, which oversaw the audit.