Is the Pension Benefit Guaranty Corporation (PBGC) deficit really $58.8 billion for their Multiemployer Plan (MEP) program?
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 Insolvency usually occurs after all contributing employers have withdrawn from the plan, leaving the plan without a source of income.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.
Plan Name: Central States, Southeast & Southwest Areas Pension Plan
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.