WASHINGTON—The Pension Benefit Guaranty Corporation today released its long-term exposure report, which shows financial deterioration in some pension plans and increased deficits for PBGC.
“Most private pensions are sound,” said PBGC Director Joshua Gotbaum, “but some are real sources of concern. We want to make sure they can restore themselves, and that PBGC has the resources to help.”
The exposure report provides projections on the future status of private pension plans and their effect on PBGC’s financial status. The projection, as of Sept. 30, 2010, in PBGC’s single employer program was for a deficit of $24 billion in 2020, an increase from the program’s $21.6 billion deficit on that date.
Concerns about Some Multiemployer Plans
For the multiemployer program, the deficit was projected in the same period to reach $9.4 billion up from $1.5 billion.
Projections in the report show a nearly 30 percent chance that PBGC’s multiemployer program will run out of money entirely within 20 years. As of FY 2010, the multiemployer program had $1.6 billion in assets to cover $3.1 billion in existing liabilities.
Many multiemployer plans remain financially sound. Financial distress in the multiemployer program stems from funding shortfalls of a few large multiemployer plans.
Unlike single-employer plans, PBGC does not acquire the assets of multiemployer plans, but instead must wait until they are completely insolvent before beginning to fund benefits. Computer simulations from the agency’s Pension Insurance Modeling System project that the multiemployer program has a 6 percent chance of becoming insolvent by 2020, and a nearly 30 percent chance of insolvency by 2030.
Single-Employer Program Projected Steady during next Decade
PBGC performed 5,000 simulations on the future of the single employer program, which has $78 billion in assets to cover $99 billion in pension benefits. The average projection showed an increase in future program deficits, to $24 billion. None of the computer simulations projected the program to run out of money in the next 10 years.
Because the agency pays benefits over a lifetime for people receiving pensions, a deficit in the program means less money will be available in future decades. However, that point still appears to be many years in the future for PBGC’s single-employer program.
PBGC emphasizes that its projections, though using the best models available, retain all the limitations of long-term financial projections. The agency’s modeling system can’t account for all factors that affect the financial condition of traditional pension plans, including employer decisions about whether to keep current pension plans or change to other forms. As the modeling system stretches further into the future, those factors become increasingly important.
The projections were made as part of PBGC’s FY2010 annual report, based on economic and financial conditions at that time. PBGC will release its annual report next week and will update its exposure report in the near future.
PBGC protects the pension benefits of 44 million Americans in 27,500 private-sector pension plans. The agency is directly responsible for paying the benefits of more than 1.5 million people in failed pension plans. PBGC receives no taxpayer dollars and never has. Its operations are financed by insurance premiums and with assets and recoveries from failed plans.