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Multiemployer Insurance Program Deficit Threatens PBGC's Solvency

  • By Deborah Forbes
  • Published: 7/3/2014

The financial position for the single-employer insurance program has improved dramatically, according to the FY 2013 Projections Report, released Monday by the Pension Benefit Guaranty Corp. (PBGC). However, the financial position for the multiemployer insurance program has declined dramatically—which could also spell trouble for single-employer plans and for PBGC itself.

While PBGC reported a deficit of $27.4 billion for FY 2013, the new report projects that the single-employer deficit will shrink to about $7.6 billion by 2023. The $20 billion improvement is due largely to changes in market conditions, including strong stock market returns and increases in interest rates in 2013, and increases in the single-employer premium rates.

The Projections Report makes it clear that there is absolutely no threat of a taxpayer bailout of the single-employer program. In fact, in the 5,000 scenarios simulated in PBGC’s modeling, there were none in which PBGC ran out of money within the 10-year projection period.

In contrast, despite the improving economy and strong asset returns in 2013, some already distressed multiemployer plans remain critically underfunded. Those plans could cause the agency's current multiemployer deficit of $8.3 billion to grow to $49.6 billion by 2023. According to the report, the failures of these plans would drain PBGC's multiemployer program of its assets, leaving PBGC unable to pay guaranteed benefits. PBGC estimates that, absent premium increases or changes in law, the program is more likely than not to run out of funds in eight years and highly likely to do so within 10 years.

Josh Gotbaum, PBGC’s director, and Christopher Bone, director of PBGC’s Policy, Research and Analysis Department, discussed the Projections Report via webinar this week. During the webinar, Gotbaum stated that single-employer plan sponsors should be aware that they could be at risk to be tagged to pay for multiemployer benefits should that fund run out of money.  Although the two insurance programs are legally separate, Gotbaum said that he wanted to remind single-employer sponsors of a bill introduced in 2010 by Sen. Bob Casey (D-Pa.) that would have allowed PBGC to use single-employer funds to pay benefits if the multiemployer fund ran out of money. In fact, that bill (S. 3157), would have allowed temporary interfund transfers in some very limited circumstances, but would have made the U.S. government—not single-employer plan sponsors—ultimately liable for the multiemployer benefits in those circumstances. The bill died in committee and no similar legislation has been proposed since then.

You can find and in depth article from Pension and Investment here.

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