PBGC Programs’ Deficits Continue to Climb

The Pension Benefit Guaranty Corporation’s (PBGC’s) multiemployer insurance program reported a negative net position or “deficit” of $52.3 billion, compared with $42.4 billion last fiscal year-end, according to the agency’s 2015 fiscal year Annual Report.

In addition, the single-employer program deficit increased to $24.1 billion, up from $19.3 billion reported in the previous year. 

The larger deficit for the multiemployer program is due to changes in interest factors the agency uses that increased multiemployer program liabilities. PBGC’s interest factors are used to measure the value of future benefit payments. During a media call, the agency explained that its interest factors are set from a survey of annuity prices, and they are set so that, in combination with mortality tables it uses, PBGC can get a good evaluation of prices in the annuity marketplace. The agency is trying to replicate the price in the private market to provide annuities to participants in terminated employer plans.

The deficit increase was also driven by the identification of 17 additional multiemployer plans that are newly terminated or are projected to run out of money within the next 10 years.

NEXT: Increased deficit in single-employer plan

While the Multiemployer Pension Reform Act of 2014 (MPRA) increased multiemployer plan premiums and provided new options for troubled multiemployer plans to avoid insolvency, no plans have completed the processes required to use MPRA options; therefore, PBGC’s FY 2015 financial results do not show any effect due to the use of those options.

The agency explained that the Annual Report is a snapshot of what has happened to date in the fiscal year, while the Projections Report issued earlier in the year looks ahead 10 years and considers forthcoming legislation.

The increased deficit in the single-employer program is due largely to changes in interest factors that increased the value of single-employer program liabilities. In fiscal year (FY) 2015, the agency paid $5.6 billion in benefits to 826,000 retirees in terminated single-employer plans (compared to $5.5 billion in FY 2014). In FY 2015, the agency assumed responsibility for more than 25,000 additional people in 65 trusteed single-employer plans. However, as in recent years, PBGC did not incur any large losses from completed or probable plan terminations.

The agency said it received $4.1 billion in premiums for single-employer plans, and investment income was a small $324 million.