The Pension Benefit Guaranty Corp. has some options for improving the financial condition of its strapped multiemployer program, the Congressional Budget Office said in a new report predicting the agency will have “relatively small” claims in the current decade but larger ones in the following decade.
The PBGC’s financial position could be improved by raising premiums, reducing maximum benefit amounts, increasing employer contributions, or requiring better-funded plans to fund at the market value of liabilities, said CBO officials, with the caveat that some of those steps could worsen the program by driving away some employers. Restricting plans’ investments in “risky” assets, including stocks, would help prevent underfunding in well-funded plans, but not those facing near-term insolvency, the report said.
The multiemployer program, which covers 10 million participants, faces a $53.4 billion deficit and insolvency by 2025, according to agency projections. In the event of insolvency, $3 billion in claims could not be paid through 2026 under current law, and the agency could not spend more than $6 billion in the following decade, 2027-2036, despite a projected $35 billion in claims, CBO officials said.
According to the CBO, multiemployer plans have promised $850 billion in benefits but only have $400 billion in assets. While most plans hope to make up the funding gap with investment returns or increased employer contributions, a “small but growing” number of plans covering 1 million participants have just $40 billion to cover $100 billion in liabilities, and have reported they are not likely to make up the shortfalls.
The CBO report said plan funding rules and multiemployer plans’ use of “risky” investment portfolios expose the PBGC to large potential losses.
Recent legislative changes raising PBGC premiums and allowing some plans to reduce benefits under certain conditions “modestly improved the outlook,” but claims will still far exceed resources over the next 20 years, CBO said.
Other options include providing federal funds to allow the PBGC to partition troubled plans, recapitalizing the agency or allowing full or partial privatization.
The report is available on the CBO website.