The Pension Benefit Guaranty Corp.’s single-employer insurance program has an operating surplus that is expected to continue to improve over the next 10 years, according to the agency’s annual projection report.

The report projects the average real value of the program’s surplus to be $26.7 billion in fiscal year 2028, an increase of $6.6 billion from last year’s projection.

Steady increases in premiums and low rates of recent claims have moved the program into the black for the first time since 2001.

In fiscal year 2018, the single-employer program held $109.9 billion in assets and $107.5 billion in liabilities, for a positive net position of $2.4 billion.

Still, the program faces increasing risk as the number of poorly funded plans that PBGC says stand a “reasonably possible” chance of insolvency is considerable.

Together, those plans account for $175 billion in underfunded pension promises, or 7 percent of the 23,000 pensions PBGC insures.

“We do not expect all of those plans will result in future claims but it means the program is vulnerable to a downturn in the economy,” said PBGC director Gordon Hartogensis in a press call.

In 2001, when the single-employer program emerged from a prior deficit, $300 billion in claims were made to the agency as the country suffered a recession, despite there being only $10 billion in underfunded plans that stood a reasonably possible chance of insolvency.

“Underfunding among plans sponsored by entities with below investment grade credit ratings has increased by an order of magnitude since that period (2001), but the percentage manifesting as claims has, to date, decreased,” according to the projections report.

As the single-employer program has improved, PBGC has shifted its investment policy to gradually reduce risk.

Of the 5,000 simulations run by actuaries at PBGC, none show the single-employer program running out of money in the next 10 years.

The average projection for total new claims in 2019 is $1.6 billion. PBGC takes into account the financial health of sponsoring companies and the underfunded levels of their pensions when projecting future claims. The projection drops to an average of $1 billion in claims in 2028.

The average projection of investment income generated from the single-employer program’s assets is $6 billion in 2019, and $4 billion in 2028.

The agency’s average projection of total premiums collected over the next 10 years is $28 billion.

The growing trend of healthy companies de-risking pensions through annuity purchases is not accounted for in PBGC’s modeling. Those buyouts result in lower premium revenue to PBGC. But the agency says it is gathering data on pension buyouts with the intention of incorporating the trend in future modeling.

5 worst, best states for pension funding

4 retirement plan sponsors with pension woes

Instant Insights /

PBGC single plan program back in black, number of poorly funded pensions growing

More From HR Executive

Related Stories

Recommended For You