PBGC Nearly $50B in the Green, Report Says

The Pension Benefit Guaranty Corporation released its annual funding report for fiscal year 2023.

The PBGC reported large and growing surpluses for both the single-employer and multiemployer insurance programs. The single-employer program reported a rolling net surplus of about $44.6 billion in assets, about $8 billion higher than in 2022; and the multiemployer program’s balance was $1.5 billion, about $400 million higher than in 2022.

The health of the multiemployer program is in large part due to the Special Financial Assistance Program, which has provided more than $50 billion in grants to struggling multiemployer plans. Prior to the SFA Program, the multiemployer insurance program was projected to become insolvent in 2026.

The single-employer program is projected to continue to grow for at least the next 10 years, and the multiemployer program is projected to remain solvent for at least the next 40 years.

In light of their financial health, the Government Accountability Office removed both PBGC programs from its high-risk series report, published in April.

Brian Donohue, a partner with October Three, an actuarial consulting firm, says the “PBGC is in outstanding financial shape.” He adds however, that it is “worth understanding that the numbers are volatile.” According to the PBGC’s report, the single-employer program was underfunded by more than $20 billion in 2016.

The report described a stress test in which the PBGC measures the hypothetical liabilities the pension insurer would incur if it assumed responsibility for every underfunded single-employer plan sponsored by an employer with a credit rating less than investment grade. In 2023, that amount would be about $25 billion, or about half of the PBGC’s current surplus.

However, in 2022, that liability amount was about $52 billion, greater than its current surplus of nearly $45 billion, further highlighting the volatility of the PBGC’s liabilities and assets. Donohue says, “We could come back a year from now, and that [potential liability] number $25 billion is back at $50 billion,” and the PBGC may never really “be out of the woods.”

Donohue explains that many “pension plans are improving their funding status,” and the “risks that the PBGC is underwriting look more and more manageable.” Donohue acknowledges that “things can happen” and points to historical waves of pension insolvency, such as in the steel industry in the 1970s and among airlines around the turn of the century.

U.S. corporate pension funding levels have steadily improved in 2023.  The improved funding levels also limit the PBGC’s exposure to underfunded plan risk.

Donohue emphasizes that, to the PBGC, insurance premiums are “a real burden for plan sponsors.” Insurance premiums and controlling their cost “is a huge focus for sponsors,” and, especially in light of the PBGC’s funding status, “these sponsors deserve a break.”

The ERISA Industry Committee echoed this sentiment and argued that the PBGC’s overfunding should move Congress to lower premiums paid by pension sponsors.

“Today’s report is a reminder that while PBGC’s single-employer insurance program has been overfunded for years, plan sponsors will be subject to yet another automatically imposed premium increase next year,” said Andy Banducci, ERIC’s senior vice president for retirement and compensation policy, in an emailed statement. “PBGC does not need current premium levels to sustain its insurance program, and continuing to dramatically overfund the program will not provide additional benefits or protections for employees.