The PBGC’s multiemployer pension plan program got three more projected years of grace before running out of money, primarily due to increased premiums dictated by the Multiemployer Pension Reform Act of 2014, according to the agency’s FY 2014 Projections Report released Monday. The single-employer program projections show continued improvement, with solvency in the next 10 years.

The report is an annual actuarial evaluation based on a range of estimates of the future status of insured pension plans and their effect on PBGC’s financial condition, using hundreds of different economic scenarios.

The multiemployer program’s fiscal year 2014 deficit of $42.4 billion will decrease to $28 billion by 2024, measured in present value. That is down from an average deficit projection of $49.6 billion in 2023 in last year’s report. Last year’s report had the multiemployer program becoming insolvent by 2022, which now was moved to 2025. But Pension Benefit Guaranty Corp. officials stressed in the report that even if the fund is still solvent in 2025, the risk of insolvency will grow rapidly afterward.

The current estimates for the single-employer program shows a projected deficit shrinking to $4.9 billion by 2024 from the current $19.3 billion. Last year’s report projected an average deficit of $7.6 billion in fiscal year 2023. The report notes “significant variation” around the average outcome. Some of the changes in the latest projection include recognition of hybrid plans, adjusted bankruptcy probabilities for some sponsors, updated mortality rates.

The multiemployer program covers roughly one-fourth of private-sector defined benefit plans. So far, the PBGC has provided full benefit coverage for 79% of those participants, “but many more participants are likely to experience significant benefit reductions if the plans become insolvent,” the report noted.

The Multiemployer Pension Reform Act allows some plans facing insolvency within the next 20 years to permanently reduce benefit promises if it keeps them above PBGC guarantee levels. The agency also can provide financial assistance for plan partitions or mergers. While anticipated benefit cuts and partitions “substantially reduce the magnitude of the projected PBGC deficits in 2024, they do not significantly change the projected insolvency of the fund,” the report noted.

Source: Pensions & Investments