PBGC Multiemployer Plan Program Examined

Is the Pension Benefit Guaranty Corporation (PBGC) deficit really $58.8 billion for their Multiemployer Plan (MEP) program?

According to a summary page from the FY16 PBGC Annual Report as of 9/30/16 there was $2.2 billion in assets and $61 billion in liabilities.

Putting the asset history from those reports into a spreadsheet (in millions):


PBGC MEP premiums jumped in 2015 from a flat $12 per participant to $26 per participant which was the primary reason for the increase in total assets.

Putting a present value on pension liabilities is always tricky but especially so for the MEP program which covers 10 million participants in 1,400 plans with the key to valuing PBGC liabilities being guesswork as to which of those plans will need financial assistance and when and for what portion of benefits.  In 2014  two major plans (Central States & ???) were added to the list of probable insolvents ushering in the era of 4% funded ratios:


Explaining that liability jump in the 2014 report:

During Fiscal Year 2014, PBGC’s obligations for future financial assistance to multiemployer plans increased from $9,931 million at September 30, 2013 to $44,190 million at September 30, 2014, an increase of $34,259 million (345%). This increase is mainly due to the addition of two large new probables ($26,335 million net claim) and 14 additional new probables ($8,987 million net claim).
PBGC does not trustee multiemployer plans. In the multiemployer program, the event triggering PBGC’s guarantee is plan insolvency– the inability to pay guaranteed benefits when due. Insolvency usually occurs after all contributing employers have withdrawn from the plan, leaving the plan without a source of income. PBGC provides insolvent multiemployer plans with financial assistance, in the statutorily-required form of loans, sufficient to pay PBGC guaranteed benefits and reasonable administrative expenses. These loans generally continue until the plan no longer needs assistance or has paid all promised benefits at the guaranteed level. These loans are rarely repaid (and for that reason are fully reserved).
PBGC’s identification of plans that are likely to require such assistance and estimation of related amounts required consideration of many complex factors, including estimating future cash flows, future mortality rates, and age of participants not in pay status. These factors are affected by future events, including actions by plans and their sponsors, most of which are beyond PBGC’s control. Reasonably possible multiemployer classification is defined as an ongoing plan with a projected insolvency date between 10 and 20 years from the valuation date.
To enhance an existing methodology for determining the probable liability, effective with FY 2014, ongoing plans are divided into segments based on the number of plan participants with different processes by plan size. The reserve for small ongoing plan (less than 2,500 participants) probable losses not individually identified uses an aggregate method to estimate liability and exposure, rather than reviewing each plan individually, based on the use of seven years of plan termination history to project the current probable liability. For mid-sized plans (2,500 to 35,000 participants), risk-based rules are applied using a cash-flow model. For large plans (more than 35,000 participants), PBGC identifies ongoing high risk plans for a projection of the date of insolvency to measure the probable liability.
As of 2016 those PBGC liabilities consisted of:
Assuming Central States is one of those 40 ongoing plans that will need future assistance, based on their latest 5500:

Plan Name: Central States, Southeast & Southwest Areas Pension Plan

EIN/PN: 36-6044243/001

Total participants @ 12/31/15: 390,926 including:

  • Retirees: 201,332
  • Separated but entitled to benefits: 126,532
  • Still working: 63,062

Asset Value (Market) @ 1/1/15: 17,863,105,558

Value of liabilities using RPA rate (3.51%) @ 1/1/15: $54,100,020,891 including:

  • Retirees: $31,736,480,228
  • Separated but entitled to benefits: $12,839,864,152
  • Still working: $9,523,676,511

Funded ratio: 33.02%

Unfunded Liabilities as of 1/1/15: $36,236,915,333

Asset Value (Market) as of 12/31/15: $16,126,208,142

Contributions 2015 (MB): $1,275,947,643

Contributions 2015 (H): $586,666,647

Payouts 2015: $2,814,338,009

Expenses 2015: $95,138,445

The important number here is that 33% funded ratio as of 2015. As it happens the Congressional Budget Office (CBO) just released a report on the financial condition of the MEP program which estimated the funded ratio on a market value basis of ALL multiemployer plans to be 40%.



If PBGC were to cover all MEP benefits in full it would need $600 billion right now. That is not about to happen and won’t even be necessary since, whether through PBGC’s own limits on benefits or MPRA reductions or the next law that comes along, every participant in a multiemployer plan can expect benefit reductions.  The only questions are when, by whom and how much.

6 responses to this post.

  1. Very interesting…I’m struck by PBGC’s ability to avoid any yearly investment loss during 2008/9 — perhaps due to the types of assets it holds? It seems odd, because they describe themselves as being invested in equities, etc.: http://www.pbgc.gov/about/how-pbgc-operates.html

    Also, I’d add to the last sentence: “The only questions are when, by whom and how much…and how much they’re able to shift the unfunded liabilities onto taxpayers and/or all holders of dollar-denominated assets (via ‘QE-for-DB’)”…


    • That’s one point but I’m hoping the erudite readership here could help us with some of the other numbers like that fudge factor I had to use in the reconciliation or how no expenses were reported prior to 2010 (who was paying PBGC salaries?) but when the administrative expense item appeared it more than tripled ($12 to $39 billion) from 2010 to 2016. Also looking to see if an official listing of plans on the edge that PBGC is valuing as liabilities is anywhere. It does not seem to be in their Annual Reports.


      • Posted by skip3house on November 19, 2016 at 9:19 pm

        ‘Best government job is the one where no one knows what you are doing’


      • Posted by Sandy Rich on November 20, 2016 at 8:28 am

        The PBGC has never published the list of plans that constitute the Critical and Declining ME Plans (Insolvent inside of 20 years). They have also never published the list of plans that constitute the Liability for the ME plans on their balance sheet, plans that will be insolvent inside of 10 years.


    • Posted by Sandy Rich on November 20, 2016 at 8:26 am

      The PBGC investment portfolio is approximately 1/3 diversified equities, 2/3 diversified debt. There is a small alternatives position that is unliquidated investments of Trusteed plans. The ME assets, the little that there are, are invested in Treasuries. There is pressure from the insured plans and the Board of Advisors for more risk in the PBGC portfolio, but the PBGC Finance staff and the Board of Directors, lead by the Treasury Secretary and his staff, are proponents of a more conservative strategy, investing only in US Treasury Securities.
      PBGC Investment Policy: http://www.pbgc.gov/documents/IPS-May2011.pdf


      • @Sandy — The strange part is that with 1/3 exposure to equities, you’d expect there to have been a noticeable y-o-y knock during the stock-market drop in 2008/9 (if there was a 1/3-equities-exposure at that time; maybe this position is more recent than then)…


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