Pension Benefit Guaranty Corporation Insurance Programs - High Risk Issue
The Pension Benefit Guaranty Corporation (PBGC)—which insures the pension benefits of nearly 40 million American workers and retirees—has an uncertain financial future, due in part to a long-term decline in the number of traditional pension plans. GAO added PBGC’s single-employer program to the High Risk List in 2003 and the multiemployer program was added in 2009.
Through its single-employer and multiemployer insurance programs, the Pension Benefit Guaranty Corporation (PBGC) insures the pension benefits of American workers and retirees who participate in nearly 24,800 private sector defined benefit pension plans. PBGC receives no funds from taxpayer dollars; instead, its revenues are dependent on insurance premiums paid by these plans, as well as the returns on investment income for the assets in its portfolio.
PBGC’s single-employer program covers defined benefit pension plans that are generally sponsored by one employer. When an underfunded single-employer plan (i.e., the plan's liabilities exceed its assets) terminates, such as after the employer goes bankrupt or out of business, or can no longer afford to keep the plan going, PBGC steps in to pay participants’ benefits (up to certain limits set by law). Similarly, PBGC’s multiemployer program provides financial assistance to insolvent multiemployer plans. A multiemployer plan is a pension plan created through an agreement between employers and a union. The employers are usually in the same or related industries such as transportation, construction, and hospitality.
Because of PBGC's uncertain financial future and the long-term decline in the number of defined benefit pension plans, GAO added PBGC’s single-employer program to the High Risk List in 2003. In 2009, GAO also added the multiemployer program to the High Risk List.
An uncertain future
PBGC's financial deficit has grown dramatically in recent years, and its insurance programs’ liabilities exceed PBGC’s assets. At the end of fiscal year 2018, PBGC's net financial deficit was over $51 billion—attributable to the large deficit of the multiemployer insurance program. And while the single-employer program had a surplus of about $2.4 billion, PBGC estimated that its exposure to future losses from certain underfunded plans was nearly $185 billion.
Additionally, while tens of thousands of companies continue to offer defined benefit pension plans, the number of plans and participants have declined and further declines could result in lower revenues for PBGC. Since 1985, there has been a 78 percent decline in the number of plans insured by PBGC. In addition, nearly 13 million fewer workers are actively participating in these plans.
Congress took action to address this growing crisis by passing the Multiemployer Pension Reform Act (MPRA) of 2014, which, among other things:
- provided severely underfunded plans the option to reduce the retirement benefits of current retirees (under certain conditions and only with the approval of federal regulators); and
- expanded PBGC’s ability to intervene when plans are in financial distress.
However, PBGC officials predicted the act's changes would only forestall insolvency by about an additional 3 years. Based on fiscal year 2017 projections, PBGC officials believe there is an over 90 percent chance that the multiemployer program will be insolvent by the year 2025. If the multiemployer program becomes insolvent, participants in insolvent pension plans that receive financial assistance from PBGC will receive only a small fraction of current statutory guarantees. For instance, although guaranteed benefits depend on a participant’s qualifying years of service, most participants would receive less than $2,000 per year (and in many cases, much less).
And while the PBGC's single-employer program is currently in surplus, PBGC's past experience with large claims shows that this can change quickly and precipitously. For example, the spate of plan terminations in the airline and steel industries from 2001 through 2006 resulted in more than $20 billion in net claims.
GAO-18-106: Published: Jun 4, 2018. Publicly Released: Jun 4, 2018.
The Central States, Southeast and Southwest Areas Pension Fund (CSPF) was established in 1955 to provide pension benefits to trucking industry workers, and is one of the largest multiemployer plans. According to its regulatory filings, CSPF had less than half the estimated funds needed to cover plan liabilities in 1982 at the time it entered into a court-enforceable consent decree that provides fo...
GAO-14-264: Published: Sep 30, 2014. Publicly Released: Oct 30, 2014.
Public and private sector defined benefit pension plans are subject to different rules and guidance regarding discount rates—interest rates used to determine the current value of estimated future benefit payments. These differences can result in significant implications:Sponsors of public sector plans generally use discount rates using a long-term assumed average rate of return on plan assets. T...
GAO-13-240: Published: Mar 28, 2013. Publicly Released: Apr 8, 2013.
The most severely distressed multiemployer plans have taken significant steps to address their funding problems and, while most plans expected improved financial health, some did not. A survey conducted by a large actuarial and consulting firm serving multiemployer plans suggests that the large majority of the most severely underfunded plans--those designated as being in critical status--either ha...
GAO-13-428T: Published: Mar 5, 2013. Publicly Released: Mar 5, 2013.
The most severely distressed multiemployer plans have taken significant steps to address their funding problems and, while most plans expected improved financial health, some did not. A survey conducted by a large actuarial and consulting firm serving multiemployer plans suggests that the majority of the most severely underfunded plans--those designated as being in critical status--developed plans...
GAO-13-58: Published: Nov 7, 2012. Publicly Released: Nov 8, 2012.
Various options are available to make the Pension Benefit Guaranty Corporation's (PBGC) premium structure more risk-based and better reflect the risk of future claims. Historically, PBGC's premiums have not fully reflected the risks PBGC insures against--chiefly that a plan sponsor with an underfunded plan will become bankrupt, forcing the termination of the plan and imposing a claim on PBGC. PBGC...
GAO-11-182T: Published: Dec 1, 2010. Publicly Released: Dec 1, 2010.
The Pension Benefit Guaranty Corporation (PBGC) is a self-financing government corporation that insures the pensions of 44 million workers in more than 27,000 private sector defined benefit pension plans. Yet, PBGC faces financial instability that could pose a future threat to this source of protection for Americans' retirement income. As fewer sponsors pay premiums for fewer participants in defin...
GAO-11-79: Published: Oct 18, 2010. Publicly Released: Nov 16, 2010.
Thirty years ago Congress enacted protections to ensure that participants in multiemployer pension plans received their promised benefits. These defined benefit plans are created by collective bargaining agreements covering more than one employer. Today, these plans provide pension coverage to over 10.4 million participants in approximately 1,500 multiemployer plans insured by the Pension Benefit...