October 1, 2015

PBGC Projects 2025 Insolvency for Its Multiemployer Guarantee Fund

The Pension Benefit Guaranty Corporation (PBGC) estimates there is a slightly better than 50 percent likelihood that its multiemployer guarantee fund will be insolvent (have no money) by 2025. This is three years later (from 2022 to 2025) than last year’s estimate, mainly, as a result of changes made by the Multiemployer Pension Reform Act of 2014 (MPRA). In its annual Projections Report, which it issued on September 28, 2015, the PBGC further estimates the likelihood of program insolvency by 2034 as 92%. The PBGC also estimates that there is a 50 percent likelihood that its 2024 deficit (in 2014 dollars) would be at least $28 billion if its assumptions about MPRA behavior are correct (as opposed to $44.3 billion without regard to MPRA changes).

The assumptions about MPRA suspensions and partitions have only a small impact on the estimated insolvency date (because most of the plans that MPRA will save will not run out of money until after 2025) but they have a significant effect on the size of the program’s deficit at the time of insolvency.  (The deficit is based on the expected payments to participants over their lifetimes; after the PBGC’s program is insolvent, it still could pay benefits to participants, but payments would be limited to the amount yearly premium receipts can pay.)

The PBGC’s projections — which are estimates, not predictions — are highly dependent on many highly, variable factors. Consequently, the PBGC warns “the actual results that ultimately occur in future years can, and likely will, vary materially from the projections.”

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Serena Simons

Serena Simons

SVP, National Retirement Compliance Practice Leader