PBGC's new report shows surplus: Feds should lower plan premiums, say employers

The agency that provides a backstop for pension plans in the U.S. has reported new numbers showing a healthy balance sheet and general strength in the federal agency going forward.

The Pension Benefit Guaranty Corporation (PBGC), which serves as a safety net for private-sector defined benefit (DB) pension plans, released its annual report, outlining the financials of its Multiemployer Program and a Single-Employer Program. The agency reported a positive net position of $1.5 billion at the end of the fiscal year, compared with $1.1 billion in 2022. The group’s Single-Employer Program remained healthy with a positive net position of $44.6 billion at the end of 2023, up from $36.6 billion at the end of 2022. “This Annual Report marks three consecutive years of positive net financial positions for both of the agency’s insurance programs,” said PBGC Director Gordon Hartogensis.

A rocky history, recent improvements

The agency was founded by the Employee Retirement Income Security Act (ERISA) in 1974 to provide members of private pension plans with guaranteed “basic” benefits in the event that their employer-sponsored defined-benefit (DB) plans became insolvent—which has happened a number of times with DB plans. The PBGC does not cover defined-contribution (DC) plans, such as 401(k)s or 403(b)s.

According to Investopedia, “The PBGC’s job is to step in if an insured pension plan is unable to fulfill its obligations. It will then cover pension benefits at normal retirement age, most early retirement benefits, annuities for survivors of plan participants, and disability payments for those receiving such payments before the covered plan was terminated.”

With many pension plans struggling in recent decades, the PBGC was in danger of being overwhelmed during the financial crisis of 2008 and the following years, as pension issues became worse. Multiemployer plans—those created by a contract between two or more employers and a union—were hit hard by losses, and as a result, PBGC had a deficit of $42 billion in 2014.

With pensions plans in disfavor and the PBGC in the red, the federal government created a fix as part of the American Rescue Plan in 2021. That allowed the agency to create the Special Financial Assistance Program (FSA) using federal funds to shore up 200 troubled multiemployer plans and increase investments by the agency.

Rescue completed?

The agency has since reported healthy balance sheets, and this year’s report was an improvement on reports from the past two years.

According to the annual report, the Multiemployer Program, which covers 11 million participants, provided nearly $176 million in traditional financial assistance to 100 plans covering 80,000 participants receiving guaranteed benefits. The Single-Employer Plan, which covers nearly 21 million participants, paid over $6 billion in retirement benefits to nearly 920,000 retirees in PBGC-trusteed plans.

“The PBGC Single-Employer Program’s financial status showed improvement and has been in a positive net financial position, which is projected to grow over the next 10 years,” said Julie A. Su, acting Secretary of Labor and chair of the PBGC board. “The PBGC Multiemployer Program improved during FY 2023 to a positive net position and is likely to remain solvent for more than 40 years.”

Related: ERISA organization asks Congress to address ‘overfunded’ PBGC program

The annual report suggests the PBGC is now in good shape—but the agency’s strong financial position has some groups suggesting that the federal government went a bit too far in bailing out the agency. Since the agency is funded in part by premiums paid by employer sponsors of plans, some are asking whether it’s time to reconsider those premium rates. One such group is the ERISA Industry Committee (ERIC), which advocates for members—often large employers—who provide benefits that are affected by ERISA law. “Today’s report is a reminder that while PBGC’s single-employer insurance program has been overfunded for years, plan sponsors will be subject to yet another automatically imposed premium increase next year,” said Andy Banducci, Senior Vice President for Retirement and Compensation Policy at ERIC. “PBGC does not need current premium levels to sustain its insurance program, and continuing to dramatically overfund the program will not provide additional benefits or protections for employees.”