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Pension Benefit Guaranty Corporation Insurance Programs

This information appears as published in the 2017 High Risk Report.

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With nearly $100 billion in assets, the Pension Benefit Guaranty Corporation’s (PBGC) financial portfolio is one of the largest of any federal government corporation. Through its single-employer and multiemployer insurance programs, PBGC insures the pension benefits of nearly 40 million American workers and retirees who participate in nearly 24,000 private-sector defined benefit plans. PBGC’s financial future remains uncertain, due in part to a long-term decline in the number of traditional defined benefit plans and the collective financial risk of the many underfunded pension plans that PBGC insures. We designated the single-employer program as high risk in July 2003 and added the multiemployer program in January 2009.

Since fiscal year 2013, PGBC’s financial deficits have more than doubled. At the end of fiscal year 2016, PBGC’s net accumulated financial deficit was over $79 billion—an increase of about $44 billion since 2013. At the same time, PBGC estimated that its exposure to future losses for underfunded plans was nearly $243 billion.[1] The single-employer program, composed of about 22,200 plans, accounted for $20.6 billion of PBGC’s overall deficit (see figure 21). The multiemployer program, composed of only about 1,400 plans, accounted for about $59 billion. According to PBGC, these dramatic increases were attributable to broad economic factors and financial conditions of the plans PBGC insures.

Figure 21: PBGC’s Net Financial Position of the Single-Employer and Multiemployer Programs Combined – Net Position (in billions of dollars)

PBGC’s Net Financial Position of the Single-Employer and Multiemployer Programs Combined

Various laws have been enacted to strengthen PBGC’s financial position. For instance, the Pension Protection Act of 2006 (PPA) strengthened pension funding requirements for plans,[2] the Moving Ahead for Progress in the 21st Century Act (MAP-21) included measures to increase premium rates[3] and the Bipartisan Budget Act of 2013 increased premium rates further.[4] However, some of this legislation also included provisions that would allow single employer plan sponsors to defer mandatory contributions to their defined benefit pension plans.[5] To the extent that sponsors reduce contributions in the short term, they may increase plan underfunding and expose PBGC to greater risk. Recognizing the dramatic increase in PBGC’s deficit because of particular financial and demographic challenges facing many multiemployer plans, the Multiemployer Pension Reform Act of 2014 (MPRA) was enacted in December 2014 with a number of provisions to promote the long-term viability of the multiemployer program.[6]


[1] At the end of fiscal year 2016, PBGC estimated that its loss exposure in its single-employer program for reasonably possible plan terminations was over $223 billion and that its loss exposure in its multiemployer program for reasonably possible plans requiring future financial assistance was nearly $20 billion.

[2] Pub. L. No. 109-280, §§ 101,102, 111, 112, 201, 202, 211 and 212, 120 Stat. 780, 784-809, 820-46, 858-86 and 890-917. In response to the recession, these provisions were substantially softened—initially, by phasing in PPA’s changes (Worker, Retiree, and Employer Recovery Act of 2008, Pub. L. No. 110-458, §§ 101, 102, 121 and 122, 122 Stat. 5092, 5093-5103, and 5113-14), and then through changes in how minimum contributions are calculated (Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, Pub. L. No. 111-192, tit. II, 124 Stat.1280, 1283-1306).

[3] Pub. L. No. 112-141, §§ 40221 and 40222, 126 Stat. 405, 850-853.

[4] Pub. L. No. 113-67, § 703, 127 Stat. 1165, 1190-92.

[5] Highway Transportation and Funding Act of 2014, Pub. L. No. 113-159, § 2003, 128 Stat. 1839, 1849-51.

[6]Pub. L. No. 113-325, div. O, 128 Stat. 2130, 2773-2822 (enacted as part of the Consolidated and Further Continuing Appropriations Act, 2015).

Managing Risks and Improving VA Health Care

As with our last report in 2015, there is no rating for this high-risk area because addressing the issues in this area primarily involves congressional action, while the high-risk criteria and subsequent ratings were developed to reflect the status of agencies’ actions and the additional steps they need to take.

While PBGC faces a significant long-term challenge with its single-employer program, it faces an immediate and critical challenge with its multiemployer program. In a 2013 report, we recommended that Congress consider comprehensive and balanced structural reforms to reinforce and stabilize the multiemployer system.[1] In December 2014, Congress took action to address the growing crisis in the multiemployer pension system by passing MPRA, which enacted several reforms responsive to our 2013 report on PBGC’s multiemployer program.[2] Specifically, MPRA provided severely underfunded plans, under certain conditions and only with the approval of federal regulators, the option to reduce the retirement benefits of current retirees to avoid plan insolvency[3] and expanded PBGC’s ability to intervene when plans are in financial distress.[4] In addition, MPRA doubled the premiums paid by multiemployer plans (from $13 to $26 per participant).[5] While these reforms are intended to improve the program’s financial condition, projections suggest that the future insolvency of the multiemployer program remains likely. Prior to passage of MPRA, PBGC estimated that the multiemployer insurance fund would likely be exhausted by 2022 as a result of current and projected plan insolvencies. PBGC officials noted that the act did not fully address the crisis in the multiemployer program and they predict that the changes will only forestall insolvency of the program probably by about an additional 3 years. Current estimates indicate that these changes will allow some plans to stay solvent and will reduce the cumulative unmet need for financial assistance to multiemployer plans by about half. As of January 2017, 10 pension plans had submitted 11 applications to suspend benefits under MPRA. (4 applications have been denied, 2 were withdrawn, 4 are under review, and 1 has been approved.) In addition, the Bipartisan Budget Act of 2013 and the Bipartisan Budget Act of 2015 increased premium rates for the single-employer program.[6]

PBGC continues to face long-standing funding challenges for its single-employer insurance program as well, due to an overall decline in the defined benefit pension system. While tens of thousands of companies continue to offer traditional defined benefit plans, the total number of plans has declined significantly, as has participation in those plans. Since 1985, there has been a 79 percent decline in the number of plans insured by PBGC to 23,769 plans in 2014 and more than 11 million fewer workers are actively participating in these plans. As a result, PBGC’s premium base has been eroding over time as fewer sponsors are paying premiums for fewer participants.

Additionally, the structure of PBGC’s premium rates—a key component of PBGC’s funding—has long been another area of concern. Despite periodic increases in premium rates, which are set according to statute, the level of premiums has not kept pace with the magnitude and multiplicity of risks that PBGC insures against.[7] Moreover, plan underfunding is the only risk factor currently considered in determining a sponsor’s premium rate. Since 2011, the administration has proposed legislative reforms that would authorize the PBGC board to adjust premiums and to explore designing a more risk-based premium structure. Under the current premium structure for its single-employer program, PBGC collects from sponsors a per-participant flat-rate premium and a variable-rate premium that is based on a plan’s level of underfunding.[8] In 2012, we recommended that Congress consider authorizing a redesign of PBGC’s premium structure for single-employer plans to allow incorporation of additional risk factors, such as consideration of a sponsor’s financial health. PBGC officials stated that they have continued efforts to enhance understanding of alternative premium structures by analyzing the limitations of the current system and by modeling various alternative risk-based options. However, to date no legislation incorporating additional risk factors into PBGC’s premium structure has been enacted.

PBGC’s governance structure is another area of weakness noted in several of our past reports. In particular, we have long recommended that PBGC’s board—currently composed of the Secretaries of the Treasury, Commerce, and Labor—be expanded to include additional members with diverse backgrounds who possess knowledge and expertise useful to PBGC’s mission. This recommendation has not yet been enacted into law, but MAP-21 included provisions to improve PBGC’s governance by prescribing in greater detail the working relationships between its Board of Directors and its Inspector General, General Counsel, Advisory Committee, and Director.[9] It also called for the National Academy of Public Administration (NAPA) to review PBGC’s governance structure and to report on the ideal size and composition of its board.[10] In its September 2013 report, NAPA recommended to Congress that if the agency is provided greater responsibility over its policies, PBGC’s board should be expanded.[11] Furthermore, we have long emphasized that PBGC requires strong and stable leadership to ensure that it can meet its future financial challenges.

In August 2016, the Secretary of Labor provided updated information related to several of these areas of concern. Regarding the long-term financial stability of both insurance programs, the Secretary noted that the President’s 2017 budget again proposed that the PBGC Board be granted the authority to adjust premiums, and with that authority directed the Board to raise $15 billion in additional premium revenue from the multiemployer program. With regard to the recommendation to improve PBGC’s governance structure, the PBGC Board has declined to pursue the matter further absent authorizing legislation. PBGC has recently established an Enterprise Risk Management function and plans to hire a Risk Management Officer to identify and determine appropriate actions to mitigate the risks identified. As of October 2016, PBGC had not yet filled this position or determined the areas of potential risk to be targeted.


[1] Private Pensions: Timely Action Needed to Address Impending Multiemployer Plan Insolvencies, GAO‑13‑240 (Washington, D.C.: March 2013).

[2] Private Pensions: Timely Action Needed to Address Impending Multiemployer Plan Insolvencies, GAO‑13‑240 (Washington, D.C.: March 2013). Stakeholders with whom we spoke in connection with our report identified reduction of retiree benefits as a last resort. We recommended that Congress consider comprehensive and balanced structural reforms, taking into consideration the relative burdens that each reform option would impose on the competing interests of all plan stakeholders. In a 2010 report, we also made several recommendations to PBGC regarding the multiemployer program. In response, PBGC took steps to improve its oversight of multiemployer plans. Agency officials reported that they began sharing more information on these plans with other agencies, and that they strengthened their monitoring by, among other things, re-assigning attorneys to work primarily on multiemployer plan matters, awarding an audit services contract to develop nonfinancial assistance to plans, and authorizing additional positions to oversee financial assistance for troubled plans. Private Pensions: Changes Needed to Better Protect Multiemployer Pension Benefits, GAO-11-79, (Washington, D.C.: Oct. 18, 2010.)

[3] § 201(a)(6) and (b)(5), 128 Stat. 2799-2809 and 2811-22 (to be codified at 29 U.S.C. § 1085(e)(9) and 26 U.S.C. § 432(e)(9)). Benefits may not be reduced to less than 110 percent of the monthly amount guaranteed by PBGC. The maximum annual guarantee for 2016 was $12,870 for a retiree with 30 years of service. Benefit reductions are further limited for retirees over 75 and no benefits based on disability may be suspended. The Department of the Treasury, in consultation with the Department of Labor and PBGC, must approve any proposal to suspend benefits.

[4] §§ 121 and 122, 128 Stat. 2794-96 (to be codified at 29 U.S.C. §§ 1411(e) and 1413).

[5] § 131(a)(1), 128 Stat. 2796-97 (to be codified at 29 U.S.C. § 1306(a)(3)(A)(vi)). In addition, the law established a mechanism to automatically adjust premiums annually for multiemployer plans and they increased to $28 in 2017. § 131(a)(2), 128 Stat. 2796-97 (to be codified at 29 U.S.C. § 1306(a)(3)(M)). Furthermore, MPRA requires PBGC to analyze the effect of the most recent premium increases on the multiemployer program deficit. If current premiums are not sufficient to meet current and future obligations of the program, PBGC must propose to Congress a schedule of revised premiums. § 131(c), 128 Stat. 2797-80.

[6] Pub. L. No. 113-67, § 703, 127 Stat. 1165, 1190-92 and Pub. L. No. 114-74, § 501, 129 Stat. 584, 591-92.

[7] See 29 U.S.C. §§ 1306 and 1307.

[8] PBGC also collects termination premiums from sponsors of single-employer plans that terminate their plans under certain circumstances. 29 U.S.C. § 1306(a)(7).

[9] § 40231(a) and (d), 126 Stat. 853-54 and 855,.

[10] § 40231(f), 126 Stat. 855-56.

[11] NAPA, The Governance Structure of the Pension Benefit Guaranty Corporation: An Independent Review (Washington, D.C.: September 2013).

Although Congress and PBGC have taken significant and positive steps to strengthen the agency over the past 3 years, concerns persist related to the multiemployer program and challenges related to PBGC’s overall funding structure and governance. While changes were made with passage of MPRA, PBGC officials believe there is a 50 percent chance that the multiemployer program will be insolvent by the year 2025, and after that, the risk of insolvency rises rapidly—reaching 90 percent by 2032. Further, the premium structure for PBGC’s single-employer program continues to result in rates that do not align with the risk the agency insures against and the effectiveness of PBGC’s board remains hampered by its size and composition.

Moreover, PBGC continues to face the ongoing threat of losses from the termination of underfunded plans, while grappling with a steady decline in the defined benefit pension system. With each passing year, fewer employers are sponsoring defined benefit plans and the sources of funds to finance future claims are becoming increasingly inadequate. Absent additional steps to improve PBGC’s finances, the long-term financial stability of the agency remain uncertain and the retirement benefits of millions of American workers and retirees could be at risk of dramatic reductions.

Congressional Actions Needed

To improve the long-term financial stability of both PBGC’s insurance programs, Congress should consider:

  • authorizing a redesign of PBGC’s single employer program premium structure to better align rates with sponsor risk;
  • adopting additional changes to PBGC’s governance structure—in particular, expanding the composition of its board of directors;
  • strengthening funding requirements for plan sponsors as appropriate given national economic conditions;
  • working with PBGC to develop a strategy for funding PBGC claims over the long term, as the defined benefit pension system continues to decline; and
  • enacting additional structural reforms to reinforce and stabilize the multiemployer system that balance the needs and potential sacrifices of contributing employers, participants and the federal government.

Benefits Achieved by Implementing Our Recommendations

Table 8: Financial Savings from Fiscal Years (FY) 2013-2016: $4,570 million

Title

Amount
($ in millions)

Increase in Federal Revenues Based on Increased Premiums for the Pension Benefit Guaranty Corporation (PBGC) - MAP-21 (FY16 YR 4)

1,885

Increase in Federal Revenues Based on Increased Premiums for PBGC - Bipartisan Budget Act (FY16 YR 2)

850

Increase in Federal Revenues Based on Increased Premiums for PBGC - MAP-21 (FY15 YR 3)

1,065

Increase in Federal Revenues Based on Increased Premiums for PBGC - Bipartisan Budget Act (FY15 YR 1)

200

Increase in Federal Revenues Based on Increased Premiums for PBGC (FY14 YR 2)

350

Increase in Federal Revenues Based on Increased Premiums for PBGC - MAP 21 (FY13 YR 1)

220

Source: GAO. | GAO-17-317
  • Multiemployer Pension Reform. We identified specific policy options to help multiemployer plans and the PBGC insurance program avoid insolvency, including recommending that Congress consider comprehensive reforms to stabilize the system. Congress enacted the Multiemployer Pension Reform Act, which included several options we identified.
  • Interagency Sharing of Multiemployer Plan Information. To improve the quality of information and oversight of these plans, we recommended that the Employee Benefits Security Administration (EBSA) in the Department of Labor, the Internal Revenue Service (IRS) in the Department of the Treasury, and the Pension Benefit Guaranty Corporation (PBGC) revise existing interagency memoranda of understanding to address, among other things, the agencies’ process for sharing information they collect on multiemployer plans on an ongoing basis. In response to this recommendation, PBGC took numerous steps in the last 2 fiscal years to share multiemployer plan information with IRS and EBSA, including providing lists of (1) the universe of multiemployer plans, and terminated, insolvent, or terminated and insolvent multiemployer plans; (2) plans filing critical and endangered status notices; and (3) plans that failed to provide annual funding notices.
  • Proactive Monitoring of Multiemployer Plans. To implement better and more effective oversight practices, we recommended that PBGC develop a more proactive approach to monitoring multiemployer plans, such as assigning case managers to work with the plans that pose the greatest risk to the agency and providing non-financial assistance to troubled plans on an ongoing basis before the plans became insolvent. PBGC has taken numerous actions since 2011 to implement better and more effective oversight practices including: (1) re-assigning four attorneys to work primarily on multiemployer plan matters; (2) awarding an audit services contract to allow PBGC staff time to develop nonfinancial assistance to plans; (3) initiating proactive efforts to identify plans that would benefit from PBGC technical assistance and informal guidance; (4) contacting troubled multiemployer plans to obtain data on the plan’s financial situation and to create avenues to improve plan health and the financial assistance process; and (5) authorizing five additional positions to administer and oversee financial assistance extended to troubled multiemployer plans.
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  • portrait of Charles A. Jeszeck
    • Charles A. Jeszeck
    • Director, Education, Workforce, and Income Security
    • jeszeckc@gao.gov
    • (202) 512-7215