The Pension Benefit Guaranty Corp.'s two insurance programs for single-employer and multiemployer pension plans continued on divergent paths in fiscal year 2018, with the latter headed for insolvency in six years, the agency said in a projections report released Tuesday.
The single-employer program covering 26 million participants continues to improve, following last year's good news that it had emerged from a negative net position for the first time since 2001. The report said continued improvement is expected, but noted "the program remains vulnerable to an unexpected downturn in the economy."
While there is some additional risk from underfunding in plans sponsored by financially weak employers, the average projected 10-year average net position by fiscal year 2028 is a positive $37 billion in future dollars, or $27 billion in today's dollars, said the PBGC, which cited a general trend of better pension plan funding by sponsors and projections that PBGC premiums will exceed claims.
The multiemployer program is yet again projected to run out of money by the end of fiscal year 2025, at which point the government insurer will have to rely on revenues from premiums paid.
That would force the PBGC to drastically reduce the benefits paid to all covered participants, regardless of when their pension plan went to the agency. Multiemployer benefit levels already are much lower than those in the single-employer program and are capped by law.
"We would not be able to satisfy the guarantee that we have. The guarantee levels that we would be able to give out would be between 10 (cents) and 12 cents on the dollar," PBGC Director Gordon Hartogensis said on a press call.
The 10-year projection for the multiemployer program shows a wide range of potential outcomes, with an average projected negative net position of about $90 billion in future dollars or $66 billion in today's dollars, with 125 multiemployers plans expected to run out of money within the next 20 years. The program's own crisis will hit sooner, with officials expecting "more and larger" claims leading to program insolvency by fiscal year 2025.
President Donald Trump's FY 2020 budget proposes to raise an additional $18 billion in premium revenue over the 10-year budget window by creating a new variable rate premium for underfunded plans, and an exit premium for sponsors closing their plans. The proposal would allow struggling plans to waive the additional premium if it would increase their risk of insolvency.
Mr. Hartogensis said the PBGC has been providing technical assistance to members of Congress trying to find bipartisan support for ways to shore up the multiemployer program and struggling plans, and to prevent more plans from becoming underfunded.
In late July, the U.S. House of Representatives approved a multiemployer reform package centered around a federal loan program for struggling plans. The Senate has not scheduled action on a similar proposal, which is expected to see significant changes.
"We will continue to be engaged with Congress on all sides," Mr. Hartogensis said.