PBGC estimates its future financial positionPosted On: Jun. 30, 2014 12:00 AM CST
The Pension Benefit Guaranty Corp. on Monday projected a sharp decrease in the deficit in its insurance program that guarantees benefits earned by participants in single-employer plans the agency takes over, but it forecast a big increase in the deficit of its multiemployer pension plan insurance program.
The PBGC projects that the deficit in its single-employer insurance program will shrink to $7.6 billion by 2023, down from last year's $27.4 billion deficit.
In its fiscal year 2013 Projections Report, the PBGC attributes the shrinking deficit to strong investment returns, higher interest rates which drive down the value of plan liabilities, and federally mandated increases in premiums that plan sponsors pay the PBGC.
Legislation passed by Congress last year boosted the base PBGC premium, which currently is $49 per participant, to $57 per participant in 2015 and to $64 in 2016.
The same legislation also raised the variable-rate premium, which is paid by employers with underfunded plans, to $24 per $1,000 of plan underfunding in 2015 and $29 per $1,000 of plan underfunding in 2016, up from $14 in 2014.
However, the report paints a different and dismal picture for the agency's multiemployer pension plan insurance program. The report projects that even with an improving economy and strong asset returns, “some already distressed plans remain critically underfunded and will not be able to further raise contributions or reduce benefits sufficiently to avoid insolvency,” the report said.
The report projects that the multiemployer pension plan insurance program's deficit will widen to $49.6 billion by 2023, up from $8.3 billion last year.
Without changes in law and/or premium increases, the PBGC multiemployer pension plan insurance program “is more likely than not to run out of funds in eight years and highly likely to do so within 10 years,” the report said.