PBGC Reports Program Solvency and Surplus

The Pension Benefit Guaranty Corporation published its Projections Report for Fiscal Year 2022 Wednesday, showing both the single and multiemployer plan programs in strong financial positions and expected to remain solvent through their projection periods.

The PBGC said that “the projections show no scenarios in which the Single-Employer Program runs out of money within the next 10 years,” The net financial position of this program is also expected to improve over the next ten years largely due to improved plan funding which reduce PBGC’s expected liabilities.

The PBGC expects the single-employer program to have net assets of $63.6 billion in 2033, an improvement on the $53.3 billion it projected for 2032 last year. The single-employer program has 22.3 million participants.

The PBGC reported similarly rosy results for the multiemployer program. The corporation said that the median projected insolvency date for the multiemployer program was 2062, which was the end of the projection period. Prior to the Special Financial Assistance Program included in the American Rescue Plan Act, the projected insolvency date was 2026. The multiemployer program covers 11.2 million participants.

The report also stated that the PBGC expects $79.7 billion to be paid out in total under the SFA program. The estimate is based on the amount already paid out, pending applications, and potentially eligible plans that may apply in the future.

The strong financial status of the two programs drew industry comment concerning the insurance premium rates paid by pensions to the PBGC. A statement from the ERISA Industry Committee said the surplus “should cause Congress to reexamine the premiums paid by companies that sponsor defined benefit pension plans.”

The statement from ERIC also recommends decoupling PBGC funding from general federal budget scoring, which can create perverse incentives that allow the PBGC to go overfunded to “offset” other spending priorities, including those “unrelated to the retirement system.”

John Lowell, a partner at October Three, an actuarial consulting firm, says that “every plausible projection shows that the fund will remain significantly overfunded for the foreseeable future.” Congress should take this opportunity to reduce premium rates, which he says “cause plan sponsors to either terminate their plans or to de-risk through pension risk transfer or lump sum windows.”

Lowell adds that the difference in median and mean projections in the report for multiemployer plans suggests that some projections likely anticipate the insolvency of a small number of large plans and that Congress should assist the PBGC to prepare for this possibility.

Section 349 of SECURE 2.0 capped the premium variable rate for the underfunded portion of single-employer plans at 5.2% of the plan’s unfunded liabilities. The rate had previously been tied to inflation.

All other items that are used to calculate PBGC premiums, however, remain tied to inflation. That includes the amount paid per participant ($96 for single-employer and $35 for multiemployer for 2023) as well as the cap per participant paid on a plan’s unfunded liabilities ($652).

Lowell recommends that Congress “eliminate the annual inflationary increases” and “reduce fixed rate premiums and the percentage of underfunding subject to variable rate premiums.”