WASHINGTON — Despite substantial economic and market gains, multiemployer pension plans covering about 1.5 million people are severely underfunded, threatening benefit cuts for current and future retirees, according to the FY 2013 Projections Report released today by the Pension Benefit Guaranty Corporation. By comparison, the financial situation for private single-employer plans, which cover about 30 million participants, is projected to improve.
Financial Condition of Single-Employer Plans & Program Expected to Improve
The financial condition of PBGC's insurance program for single-employer plans is likely to improve over the next decade. Under current estimates, the FY 2013 deficit of $27.4 billion is projected to narrow to, on average, $7.6 billion by FY 2023. It is highly unlikely that the single-employer program will run out of funds in the next 10 years.
This year's report is a significant improvement from last year's report, which projected an average deficit in 10 years of $32.5 billion for FY2022. The changes are driven by better market conditions since the FY 2012 projections, including strong market returns and a rise in interest rates during 2013, as well as premium increases.
Multiemployer Plans Covering More than 10% of Participants at Serious Risk
In the past year, economic conditions improved significantly and most multiemployer plans are projected to remain solvent.
However, despite the improving economy and strong asset returns in 2013, some already distressed plans remain critically underfunded and will not be able to further raise contributions or reduce benefits sufficiently to avoid insolvency. Using a new methodology that takes this into account, PBGC's new projections show that insolvencies affecting more than a million of the 10.4 million people in multiemployer plans are now both more likely and more imminent.
The failures of these plans will drain PBGC's multiemployer program of its assets, leaving PBGC unable to pay guaranteed benefits. PBGC estimates that, absent premium increases and/or changes in law, the program is more likely than not to run out of funds in eight years and highly likely to do so within 10 years.
Reflecting these developments, this year's report projects that the multiemployer program's FY 2013 deficit of $8.3 billion will widen to, on average, $49.6 billion by FY 2023. The projections in this report take into account both the improving economy and the new methodology. The improving economy has had a substantial effect. If the current methodology for projecting plan responses were applied to the economic circumstances a year ago, the average projected deficit for 2022 would have been $79.6 billion, rather than the $26.2 billion in last year's report. The report measures the impact of the improving economy in several ways, and each measurement shows that the economy reduced the average deficit that would have otherwise applied by approximately one third.
PBGC made changes in the projection methodology based on recommendations from an external peer review of PBGC's Pension Insurance Modeling System. The changes reflect a more current understanding about the actual experience of multiemployer pension plans, particularly that many troubled plans have concluded that some remedial measures, though legally available, are infeasible in practice and that raising sufficient additional contributions from active employers is also infeasible.
Participants in failed plans are likely to experience significant benefit reductions under PBGC's current guarantee program, since PBGC multiemployer guarantees are much lower than those in its single-employer program. If, as projected, PBGC itself becomes insolvent, then guarantees will be cut much further.
About PBGC & the Report
PBGC protects the pension benefits of more than 42 million Americans in 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, investment income, and with assets and recoveries from failed plans.
In its multiemployer program during FY 2013, PBGC paid $89 million in financial assistance to 44 multiemployer pension plans covering the benefits of nearly 50,000 retirees. An additional 21,000 people in these plans will receive benefits when they retire.
PBGC's single-employer program insures the benefits of 32 million workers and retirees in about 23,000 pension plans. In FY 2013, the agency paid $5.4 billion in benefits to more than 851,000 retirees in single-employer plans; another 596,000 people will receive benefits upon retirement age.
As required by the Employee Retirement Income Security Act, PBGC annually provides an actuarial evaluation of its future expected operations and financial status. The FY 2013 Projections Report (formerly called the "Exposure Report") released today provides a range of estimates of the future status of private pension plans and their effect on PBGC's financial condition, drawn from hundreds of economic scenarios.
For more information, visit PBGC.gov.