On July 19, 2024, the Pension Benefit Guaranty Corporation (PBGC) released its Fiscal Year (FY) 2023 Projections Report, which forecasts the financial condition of the PBGC’s insurance programs for single-employer and multiemployer defined benefit (DB) plans.
Multiemployer program highly likely to remain solvent for more than 40 years
The multiemployer insurance program covers approximately 11.0 million participants in about 1,360 DB plans.
In the 500 stochastic projection scenarios conducted for the report, 61% indicated the program will remain solvent for more than 40 years, up from 60% of scenarios run last year. The improvement is mainly due to “better-than-expected investment performance.” The median (50th percentile1) projected net financial position of the program in 10 years is $4.4 billion, up from $3.9 billion last year, with 69% of scenarios projecting a positive net position.
The program’s current net position improved to $1.5 billion this year, up from $1.1 billion last year.
Future program solvency highly dependent on plans’ investment experience and future cash flows
The report notes the high degree of uncertainty in these projections, with the most pessimistic scenarios showing the program becoming insolvent as early as 2037 (later than the 2032 date projected last year) and the optimistic scenarios showing the program remaining solvent indefinitely. The uncertainty “is driven by several variables, such as plans’ future asset performance, contribution income, and the actual level of future benefit payments,” according to the PBGC. The program’s projected net financial position in 10 years ranges from a shortfall of $15.5 billion at the 15th percentile to a positive $5.5 billion at the 85th percentile.
The biggest contributor to the program’s recent financial recovery is the special financial assistance (SFA) program established under the American Rescue Plan of 2021 (ARP). Prior to the enactment of ARP, the PBGC multiemployer insurance program was expected to go insolvent by 2026. The SFA program provides a one-time cash payment to qualifying financially distressed plans to pay for projected benefit payments and expenses through the plan year ending in 2051, calculated using specified assumptions.2 The program is funded through transfers from the U.S. Treasury rather than from the PBGC multiemployer insurance program. In this report, the PBGC estimates the program will pay about $80 billion in SFA to 198 plans. As of July 1, 2024, the SFA program has approved $60.3 billion in SFA for 84 plans.
Net financial position of the single-employer program continues to grow
The single-employer program covers about 20.6 million participants in about 23,500 DB plans.
According to the report, the program’s current net financial position grew to $44.6 billion in FY 2023, up from $36.6 billion last year. The improvement was “primarily due to favorable PBGC asset returns and higher than expected premium income.”
The net financial position of the program over the next 10 years is expected to remain positive in all scenarios and is projected to grow to a median funded position of $70.6 billion by FY 2033, up from $62.5 billion last year. The program’s projected net financial position in 10 years ranges from $60.9 billion at the 15th percentile to $82.5 billion at the 85th percentile.
The report included an additional stress test scenario to assess the resiliency of the program upon a significant market downturn (20% reduction in the median asset return in the first year of the projection) along with claim levels resembling the highest period of claims ever experienced during the program’s history (about $38 billion in new claims for FY 2024 through FY 2029). In this scenario, the net financial position suffers a sharp decline initially, but remains positive and improves over the remaining duration of the 10-year projection period.
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1 Percentiles indicate the number of projection results below the stated amount. For example, the 15th percentile means that 15% of model results are below the stated amount and 85% of model results are above the amount.
2 Some plans received a supplemented SFA amount due to changes made to the calculation of SFA between the PBGC interim final rule and the final rule.