The Pension Benefit Guaranty Corporation's fiscal year 2016 annual report shows that 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, the PBGC said.
The PBGC's single-employer insurance program showed improvement; its deficit narrowed from $24.1 billion, at the end of fiscal year 2015 to $20.6 billion at the end of fiscal year 2016. The PBGC said that this primarily was due to investment and premium income and a low level of plan terminations during the year.
“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,” said the PBGC's 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 indicated in the report, as of September 30, 2016, the PBGC's multiemployer program had liabilities of $61.0 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 fiscal year 2016, the 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. The 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, according to the agency.
The PBGC's multiemployer program income is very small relative to its deficit, and to the increase in its liabilities during fiscal year 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 the 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, the PBGC said.
In the most recent ”Projections Report,” the 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, the PBGC said, it only will be able to provide enough financial assistance to pay a small fraction of guaranteed benefits in insolvent plans.
As of September 30, 2016, the 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 fiscal year 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 fiscal year 2016, the PBGC assumed responsibility for more than 46,000 additional people in 76 trusteed single-employer plans. As in recent years, however, the PBGC did not incur any large losses from completed or probable plan terminations, the PBGC noted.
Learn more: PBGC.gov.
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].