Reliability of the Pension Benefit Guaranty Corporation's Estimated Cost of Proposed Revisions to the Multiemployer Pension Plan Insurance Program

HRD-80-65: Published: Feb 29, 1980. Publicly Released: Mar 3, 1980.

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A review was undertaken to determine the reliability of the estimated cost to revise the multiemployer pension plan insurance program. The Guaranty Corporation submitted proposed legislation for revising the insurance program to both Houses of Congress on May 1, 1979. Some of the major provisions in the proposed legislation include: (1) a requirement that sponsoring employers, who withdraw from a plan, fund their fair share of the plan's unfunded vested liabilities through withdrawal liability payments; (2) a strengthening of funding standards designed to help ensure that employer contributions and plan assets will be sufficient to pay benefits, except in the case of a severe decline in the plan's contribution base; (3) a requirement that financially troubled plans reorganize to improve the balance between promised benefits and contributions by increasing contributions and/or limiting or reducing benefits; (4) a reduction in the present level of guaranteed benefits; (5) Corporation financial assistance to plans to the extent plan assets are not sufficient to pay guaranteed vested benefits; and (6) an increase in the premium rate. The proposed increase in the premium is from the present $.50 per participant per year to $2.60, phased in over 5 years, beginning with the first plan year after enactment of the proposed legislation. To develop the cost estimates, the Corporation made numerous estimates and assumptions on the financial condition and characteristics of a sample of multiemployer plans, which plans would become unable to pay promised benefits, and the effects of different program provisions. The Corporation then used these results to estimate alternative program provision costs for all multiemployer plans.

Since first developing the cost projection model, additional information has been added for its improvement. The changes made to the cost projection model included substantially increasing the size of the multiemployer sample, using more complete and current information annually reported, and using more current Bureau of Labor Statistics' projections of industry employment. The changes made by the Corporation improved the information used in projecting program costs. However, the plan information used was not verified through audit, and the cost projections continue to be based on many estimates of the plans' financial and operational characteristics. Further, the Corporation made assumptions on how participants and employers sponsoring multiemployer plans will react to the proposed program revisions. The number and uncertainties of estimates and assumptions used by the Corporation in its original and revised cost projection models continue to cause the estimates to be highly uncertain. Therefore, the actual program costs and premium requirements could be much higher or lower than estimated. Further, the limited available data on multiemployer plan characteristics, the uncertainty of how participants and employers will react to proposed program revisions, and the potential effect of economic trends make it virtually impossible at this time to reliably estimate the costs and premium requirements of proposed program revisions.

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