PBGC's multiemployer outlook greatly improves after help from Congress

The Pension Benefit Guaranty Corp.'s multiemployer program outlook has substantially improved following passage of the American Rescue Plan Act, according to the agency's fiscal year 2020 annual report.

Last year's report projected a very high likelihood of the program's insolvency by September 2025 and near certainty by September 2026. In the latest report, released Monday, the most pessimistic scenario projects the fund to go insolvent in fiscal year 2036, while optimistic scenarios project the fund to remain solvent indefinitely. The median projected insolvency year is now fiscal year 2055, according to the report.

"While future reforms would help improve the long-term health and resilience of the multiemployer system overall, ARP has provided a financial lifeline, and the effects of that are clear," PBGC Director Gordon Hartogensis said in a news release. "The difference between these projection reports and reports from recent years is night and day; and that is great news for the millions of workers, retirees, and their families who rely on the agency."

The American Rescue Plan Act, which was signed into law by President Joe Biden in March, in part created a federal assistance program for struggling multiemployer funds.

Under the act, a multiemployer plan is eligible for special financial assistance if it satisfies one of four criteria: it has been in critical and declining status in any plan year beginning in 2020 through 2022; it has had its benefits suspended as of March 11; it is in critical status, has a modified funding ratio below 40%, and has a ratio of active-to-inactive participants of less than 2 to 3; or it became insolvent after Dec. 16, 2014, but as of March 11 has not been terminated.

The PBGC estimates that, on average, a total of $97.2 billion in special financial assistance will be distributed to 268 plans, according to the report.

The PBGC in July unveiled an interim final rule detailing the requirements for special financial assistance applications and related restrictions and conditions on plans that receive aid.

As of Sept. 30, 2020, the multiemployer program had a deficit of $63.7 billion, but the report projects that on Sept. 30, 2030, the deficit will be $6.7 billion.

The PBGC's single-employer program, with a net financial position of $15.5 billion as of Sept. 30, 2020, has been on more stable footing in recent years.

The report projects the single-employer program will have an estimated net financial position of $49.9 billion on Sept. 30, 2030. The projected growth over the upcoming 10-year period is due primarily to projected low claims activity with premium revenue exceeding the cost of claims, the report said.