PBGC: The State of Things

As a vital safety net for millions of pension plan participants and retirees, the Pension Benefit Guaranty Corporation is facing some difficult challenges. A recent report by the Congressional Research Service (CRS) puts those challenges in comprehensive, and sharper, relief. 

In “Pension Benefit Guaranty Corporation (PBGC): A Primer,” the CRS provides a detailed look at the status and health of the PBGC overall, as well as its single-employer and multiemployer programs. 

At the end of FY 2018, the PBGC had an overall deficit of $51.4 billion. The PBGC’s budgetary cash flow is based on its premium income, interest income, benefit outlays and the interaction of its trust funds and revolving funds. 

Assets. The PBGC’s assets by the end of FY 2018 amounted to $112.3 billion; its main assets are the value of its trust fund and revolving funds. The trust fund contains:

• the assets of the pension plans of which PBGC becomes trustee; and 
• the returns on the trust fund investments. 

The revolving funds contain: 

• the premiums that plan sponsors pay to the PBGC;
• transfers from the trust fund that are used to pay for participants’ benefits; and 
• returns on the revolving funds’ investments in U.S. Treasury securities. 

Liabilities. The PBGC’s liabilities by the end of FY 2018 were $163.7 billion; its main liabilities are the estimated present values of:

• future benefits payments in the single-employer program; and
• future financial assistance to insolvent plans in the multiemployer program.

Running in the Red

The PBGC added to its “to do” list in 2018, becoming trustee of 58 newly terminated single-employer pension plans and providing financial assistance to six more multiemployer plans. So in FY 2018 it insured approximately 25,000 pension plans that covered around 37 million people; it paid benefits to 861,371 participants in 4,919 single-employer plans and 62,300 participants in 78 multiemployer plans. 

That increased activity exacted a cost, and added to the PBGC’s financial woes. By the end of FY 2018, the one glimmer of good news was the $2.4 billion surplus of the single-employer program; that countered to a small degree the $53.9 billion deficit of the multiemployer plan, for a total deficit of $51.4 billion. 

Dichotomy: A Sea of Red and Back in Black

That dichotomy of status and results — and readiness to protect participants — is not a phenomenon isolated to last year, of course, and the CRS outlines that stark difference over the last 20 years. 

The multiemployer plan ran a surplus for two decades and took one year longer to hit a deficit — but once it started running in the red in 2013 it hasn’t looked back. The deficit has almost consistently ground deeper year by year, sinking to $65.1 billion in FY 2017. The deficit did improve by $11.2 billion in 2018, but it was still a deficit — to the tune of $53.9 billion. And the fun just doesn’t stop: the CRS report says that approximately 27,800 more plan participants will fall under the PBGC umbrella because the plans to which they belong currently are receiving financial assistance. 

For its part, the single-employer program ran a surplus until 2002, when it began to run in the red; it hit its nadir in 2012 when its funds sank to a $29.1 billion deficit. It then began to recover (with the exception of a slight back slide in 2015) and in 2018 returned to a surplus and was once again running in the black. What made the difference? The CRS attributes the turnaround to investment income and an increase in premium income, which it reports was 3.6 times higher in 2018 than it was in 2008. 

Crystal Ball 

The CRS notes that in its FY 2017 Projections Report, the PBGC said that the multiemployer program is likely to run out of money in FY 2025, due to the likely insolvency of several large multiemployer pension plans. 

So severe are the multiemployer program’s deficit and prospects for the future, the CRS reports, that premium levels are likely inadequate to provide continued financial assistance to insolvent multiemployer plans. Further, it says that assistance could “exhaust the PBGC’s ability to guarantee multiemployer plan participants’ benefits,” and notes that the PBGC has indicated that once that happens, insolvent plans would have to reduce benefits to levels that could be sustained through premium collections only. 

And even the Multiemployer Pension Reform Act of 2014 (MPRA, enacted as part of P.L. 113-235), may not be enough to rescue the PBGC’s multiemployer program. The MPRA allows multiemployer pension plans that expect to become insolvent to reduce benefits to their participants. Plans that did so would not require financial assistance from the PBGC, thus reducing the amount of future financial assistance it would expect to provide and likely improving its financial condition. But, notes the CRS, the PBGC itself has estimated that the effect of the MPRA “would likely not change PBGC projections of future solvency.”

But the PBGC also indicated that the single-employer program’s deficit is likely to shrink and projected that it was likely to emerge from its deficit by FY 2018. And more sunshine to come, says that report: The average estimate of the PBGC’s simulations was for the single-employer program surplus to grow to $26 billion in 10 years.