The Pension Benefit Guaranty Corporation (PBGC) put out an annual report this week of its financial status insuring private pensions around the country. Although most pension plans look to be in better shape than last year, some plans covering multiple companies are likely to fail. At that point, between 1 and 1.5 million people would receive a guaranteed amount from the PBGC that is lower than their promised benefit. However, the PBGC itself is underfunded, and does not have sufficient reserves to sustain these payments for the long term. According to the report, the pension fund will "more likely than not" run out of funds by 2022 and is 90 percent likely to run out by 2025.
The PBGC provides insurance to defined-benefit private pension plans covering approximately 44 million people. Companies covered by PBGC pay premiums for this insurance. In exchange, PBGC will pay benefits to plan employees if the pension plan goes bankrupt. There are two separate insurance programs with different premiums, rates, and payout rules: one covering approximately 34 million workers in plans maintained by a single employer, and another covering 10 million workers in multiemployer plans.
First, the report's good news: single-employer plans are in a stronger financial position than last year, though they are not out of the hole yet. The PBGC's ten-year deficit improved from $32 billion last year to a deficit of $7.6 billion this year, mostly because of the improved economy and the increased premiums in the Murray-Ryan budget agreement. That agreement increased single-employer premiums for 2015 and 2016 and indexed them to wage growth. Although the program is still projecting a deficit, it is expected to be solvent throughout the next decade thanks to balances in its revolving fund.
Now, the report's bad news: many multiemployer plans are severely underfunded, particularly those involving unions with declining membership. Because of lower than expected market returns, declining numbers of employees, and other factors, the number of underfunded plans has increased dramatically this decade.
Multiemployer plans covering almost 1.5 Million people are severely underfunded (i.e., <40% funded)