More specifically, the PBGC’s projection method is not merely to apply a fixed set of assumptions to the data at hand, but to model the outcomes of 500 simulations of the economy, a method that allows not merely for the calculation of the program’s financial condition from year to year, but to assign a probability to outcomes each year.
In 2024, there is forecast to be a 4% likelihood of insolvency absent any changes to current law (this is an improvement over the 26% likelihood in the 2017 calculations).
In 2025, there is a 99% likelihood of insolvency (compared to 90% in the 2017 calculations).
In 2026, each and every scenario produced insolvency (vs. 99% in the 2017 calculations).
And as a reminder, when the PBGC Multiemployer Program becomes insolvent, it is only able to pay benefits to the extent that new funds come in through premiums paid by participating employers/plans.
Here’s what else is noteworthy:
In the 2017 report, the financial assistance (the funds paid out by the fund) were projected to jump from about $1 billion in 2023 to $1.5 billion in 2024 and $2.5 billion in 2025, before resuming a more steady rate of increase.
In 2018, the 2024 projected outlays have dropped to closer to $1.0 billion but the 2025 figure remains at $2.5 billion; in other words, the dramatic asset depletion and the virtual certainty around it is due to a near-doubling of projected payments in 2025.
And among the assumptions the report makes in its calculations is this:
“This report continues to assume a zero percent likelihood that the largest critical and declining plan will suspend benefits, a 30 percent likelihood that other plans will apply for suspension alone, and a 10 percent likelihood that other plans will apply for both suspension and partition.”
The “largest critical and declining plan” is, of course, the Central States Pension Fund, which applied for Treasury Department permission to suspend benefits in 2016, after the Multiemployer Pension Relief Act (MPRA) of 2014 authorized this; its request was denied because they hadn’t shown that the proposed changes would successfully allow it to escape insolvency. And yes, this is also why the projections show a near-doubling in payouts in 2025, as that’s the year when that plan is itself expected to become insolvent and call upon the PBGC for aid.
Finally, as much as the benefit payouts skyrocket, the premiums paid into the system grown only slowly.
For the Single Employer Program, the per-participant premiums were last set in 2015, with fixed increases in successive years up to 2019 and then increases based on average wage increase levels. In addition, each plan pays a variable premium based on how well- or poorly-funded the plan is. For good or for ill, the 2015 premium increases were set as part of a budget deal, because the premium increases counted as increased government revenue.
For the Multi-Employer Program, the premiums have historically been much lower; the MPRA doubled this from $13 to $26 in 2015, with inflationary increases afterwards, compared to the $78 + variable premium for Single Employer plans, though, to be fair, the MEP’s benefits are much lower. It would seem obvious that the premium should have been increased long ago, and much more dramatically. Why didn’t this happen? Julie Stich at the International Foundation of Employee Benefit Plans explains:
“Historically, the differences in premium structure and guaranteed benefits for multiemployer and single employer plans grew out of the nature of multiemployer plans, specifically a unique feature known as withdrawal liability. If a contributing employer to a multiemployer DB plan withdraws from the plan, they are financially responsible for making the necessary contributions to fund their participants’ vested benefits. This was seen as being the safety net, rather than the PBGC.
“Because the PBGCs multiemployer program is facing financial challenges, some experts assert that the premium structure for multiemployer plans should be changed to allow for variable-rate premiums and that the flat-rate should be higher. Other experts are concerned that increasing premiums will cause additional financial hardship for troubled plans and increased financial obligations for currently stable plans.”
But is this an explanation, or an after-the-fact justification for a political decision?
And in any event, we’re still waiting for action from Congress.