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The Pension Benefit Guaranty Corp. projects in reports issued Friday that the deficit in its single-employer insurance program eventually will disappear, but paints a very different and gloomy picture for its multiemployer insurance program, even with sweeping reform legislation Congress passed in 2014.
In its fiscal year 2015 Projections Report, the PBGC projects that by 2025 its single-employer program, which is funded in part by premiums paid by employers with pension plans, will have a $2.6 billion surplus.
That is a big change from last year's report, which projected a $4.9 billion deficit in 2024.
That future surplus projection for the single-employer insurance program is in stark contrast to the program's current financial position: In 2015, the PBGC reported a $24.1 billion deficit for the insurance program, which guarantees participants' benefits up to certain limits in failed plans the agency takes over.
In its report, the PBGC says its projection of an improving financial position for the single employer insurance program is based on several factors, including provisions in legislation Congress passed last year that boosts PBGC insurance premium rates over the next three years. The current $64 per plan participant rate will hit $80 by 2019.
In all, the 2015 law will generate an additional $4 billion in premium income for the agency between 2016 and 2025. Last year, employers paid the PBGC about $3.8 billion in premiums.
However, the report paints a different and dismal picture for the agency's multiemployer pension plan insurance program, even with the passage of 2014 legislation that allows financially distressed multiemployer plans to cut benefits already earned by participants.
The PBGC projects in its report that the multiemployer insurance program deficit will hit $55.5 billion in 2025. At the end of 2025, the PBGC's multiemployer insurance plan is likely to run out of money in 57% of scenarios the agency ran, according to the report.
The agency's multiemployer insurance fund is on a “trajectory to become insolvent within 10 years,” Secretary of Labor and PBGC Chair of the Board Thomas Perez wrote in a letter sent Friday to Speaker of the House Paul Ryan.
And the provision in the 2014 law allowing financially troubled plans to cut benefits to avoid insolvency and the shifting — up to certain limits — of plan liabilities to the PBGC, may not protect the PBGC from big losses.
Last month, Treasury Department regulators rejected a proposal by the massively underfunded Central States Southeast and Southwest Areas Pension Fund to cut benefits to avoid failure.
The Central States plan is so underfunded — it reported a $17.2 billion deficit in 2014 — that its collapse would completely drain the PBGC multiemployer insurance program, ending the “federal backstop” for benefits earned by multiemployer pension plan participants, Thomas Nyhan, the plan's executive director said earlier.
“We must address the funding and other challenges of the multiemployer insurance program before it is too late,” Mr. Perez said.
Employers that are late filing required forms and notices to the Pension Benefit Guaranty Corp. will face sharply higher maximum financial penalties, the agency disclosed.