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Determination of Liabilities Under PBGC’s Multiemployer Guarantee Program

Multiemployer (ME) Contingent Liability Review - Overview

PBGC periodically reviews important accounting policies. Given the complexities and changes in the economy and in multiemployer plans in recent years, PBGC decided to re-examine the policy and procedures used to quantify the level of liability under the ME guarantee program, to determine whether any changes should be made. After a review that involved a national independent financial advisory firm and included possible alternatives, we decided to retain our current policy and procedures. A summary of the review process and rationale for the decision is outlined below. We will continue to review multiemployer policy and procedures in the future.

Current ME Contingent Liability Process

PBGC evaluates ME pension plans by reviewing several quantitative and qualitative indicators of plan health. PBGC evaluates various items, such as the plans' financial statements, annual returns/reports (IRS Form 5500), annual funding notices, trends in funding and expected future plan cash flows (including contributions and employer withdrawal liability collections, investment earnings, benefit payments, and plan administrative expenses). This evaluation allows PBGC to classify plans and record contingent liabilities.

Under the current accounting policy, ME plans are usually classified as "probable" claims when they terminate or when they are projected to become insolvent within 10 years. We record a balance sheet liability in the amount of the present value of expected future financial assistance for these "probable" plans. Plans are classified as "reasonably possible" claims when they are projected to become insolvent within 20 years (and they are not classified as "probable"). The present value of future financial assistance for these plans is disclosed in the notes to our financial statements.

Review and Analysis of Classification Methodology and Accounting

PBGC engaged a national independent financial advisory firm to perform a review of the current policy including accounting standards as well as the underlying methodology and assumptions used to determine the recorded contingent liability. The review consisted of (1) an assessment of current processes, (2) a benchmarking analysis of entities bearing similar financial risks, and (3) development of potential alternative accounting and classification approaches.

Although the independent firm we contracted with provided expert analysis, PBGC's management decides questions of accounting standards, internal accounting policy, and methodology.


Based on the benchmarking process, PBGC identified four broad approaches used by comparable organizations to quantify contingent liabilities and evaluated their potential applicability to the ME program:

  • Two alternatives were eliminated based on a theoretical and logical assessment of the applicability of each approach to PBGC.
  • Another model was eliminated due to uncertainty related to model implementation, as well as a change in its accuracy pre and post 2008. The change in accuracy may be attributable to the Pension Protection Act of 2006 and the recession of 2008, but it will take data emerging over the next year or two to make that determination.
  • The fourth alternative was the current approach used by PBGC.


PBGC decided to continue using the current accounting and classification methodologies for fiscal 2013. PBGC's rationale for this decision is:

  • The accounting principle of consistency requires a substantial, cogent basis for changing an accounting policy.
  • Based on the theoretical assessment of relevant accounting standards, PBGC determined that the appropriate basis of accounting for the ME guarantee program is FASB Accounting Standards Codification (ASC) Topic 450.
  • FASB, ASC 450 is not prescriptive to the specific classification methodology, so analysis of historical data became critical. Due to the dearth of data, we do not have the basis to change the classification methodology at this time.
  • PBGC will revisit the analysis as new data emerge to determine if changes in the future are appropriate.
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