With large numbers of baby boomers moving into their retirement years, the federal government corporation that insures pension benefits for nearly 40 million workers and retirees faces growing difficulties that require Washington’s urgent attention.
These difficulties were recently summarized by the Government Accountability Office, which has included Pension Benefit Guaranty Corporation (PBGC) programs on the GAO’s “High Risk List.” That list includes government programs that GAO says need “broad-based transformation” or may be vulnerable to mismanagement.
“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,” the GAO says.
This means the financial futures of millions of American workers and retirees are uncertain as well. Many of them could eventually face sharp reductions in their retirement incomes unless Congress and the Trump administration take steps to put the PBGC on a more sustainable track.
The government corporation backs up both single-employer and multiemployer pension plans, but its multiemployer program appears to be in the worst shape.
“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,” GAO reports. “At the same time, PBGC estimated that its exposure to future losses for underfunded plans was nearly $243 billion.”
The single-employer program accounted for more than $20 billion of PBGC’s overall deficit while the multiemployer plan accounted for $59 billion.
“Although Congress and PBGC have taken significant and positive steps to strengthen the agency over the past three years, concerns persist related to the multiemployer program and challenges related to PBGC’s overall funding structure and governance,” GAO warns.
Despite some of the improvements, PBGC officials think there is a 50 percent chance that the multiemployer program will be insolvent by the year 2025, a figure that jumps to a 90 percent chance by 2032.
As for the single-employer program, GAO warns that it has an inadequate premium structure that “continues to result in rates that do not align with the risk the agency insures against.”
The GAO suggests that Congress consider a number of steps to improve the PBGC programs’ financial stability. These include authorizing a redesign of the single-employer program premium structure, expanding the composition of the PBGC’s board of directors, strengthening funding requirements for plan sponsors, and helping to develop a strategy for funding PBGC claims over the long term.
The GAO also suggested “additional structural reforms to reinforce and stabilize the multiemployer system that balances the needs and potential sacrifices of contributing employers, participants and the federal government.”
That makes for a long and difficult to-do list. As with the federal government’s other fiscal challenges, procrastination by elected officials will only make the needed repairs more difficult. They need to get started soon.