Deficits in both single-employer and multiemployer pension programs increased for the fiscal year ended Sept. 30, the Pension Benefit Guaranty Corp. reported in its annual report released Tuesday.
The single-employer program deficit increased to $24.1 billion, up 25% from fiscal year 2014, while the multiemployer insurance program deficit was $52.3 billion, up 23% from the previous fiscal year.
The increase in the single-employer deficit was largely due to changes in interest rates that caused larger liability values, since PBGC officials use interest rates based on the cost of buying annuities for a terminated plan. “When the discount rate changes, the dollar impact is bigger,” said a PBGC official during a background news conference call.
The larger multiemployer program deficit was also due to changes in the interest rates used to measure the value of future benefit payments, as well as 17 additional multiemployer plans that were terminated in fiscal year 2015 or are projected to run out of money within the next 10 years.
Out of the $5.7 billion the PBGC paid out in fiscal year 2015, $5.6 billion covered benefits for participants in failed single-employer plans that the PBGC took over, up from $5.5 billion total paid out the previous year. The PBGC took on 65 more single-employer plans in fiscal year 2015, but did not incur any large losses, the official said on the call.
Multiemployer plans cost that program $103 million.
The PBGC annual report provides a snapshot of what has happened to date, while its projections report issued in the fall tries to look ahead 10 years. The fiscal 2014 projection report released in September gave the multiemployer pension plan program three more projected years of grace before running out of money in 2025, primarily due to increased premiums. The single-employer program projections showed continued improvement, with solvency for the next 10 years. Projection reports are based on a range of estimates of the future status of insured pension plans and their effect on the PBGC’s financial condition, using hundreds of different economic scenarios.
“We do not see anything that would cause us to significantly change that projection,” the PBGC official said during the call Tuesday.
Not factored in the latest annual report is how the Multiemployer Pension Reform Act of 2014 will affect the PBGC’s finances if more troubled plans take advantage of PBGC financial assistance for partitions and mergers, or conversely, if plans are allowed to reduce benefits.
“The multiemployer program continues to rise in importance, and we have a lot of work to do around it,” said the official, who added that final rules for distressed multiemployer plans to apply for partitions or for facilitated mergers could be out by December or January.