PBGC was created to protect the pension benefits of participants and beneficiaries in private-sector, defined benefit (DB) pension plans. Single-employer plans are operated by one employer for the benefit of eligible employees of that company. In FY2013, the single-employer program insured 31.9 million participants in 23,400 pension plans and the multiemployer program covered 10.4 million participants in about 1,450 pension plans. The financial condition of PBGC may be of interest to Congress for several reasons: (1) Congress has demonstrated a clear interest in the retirement income security of American workers, for example, by providing a variety of tax incentives to encourage employer and employee contributions to retirement plans (Congress established PBGC as a pillar of retirement income security); (2) the insolvency of PBGC could require decreases in retirees' promised benefits or U.S. financial assistance; and (3) increases in PBGC premiums are scored by the Congressional Budget Office (CBO) as increases in government revenue. The remainder of this report details the financial position and sources of revenue of the PBGC's single-employer pension program, describes the premiums that the sponsors of single-employer pension plans pay to PBGC, and discusses recent policy proposals to alter the structure of the premiums that single-employer pension plans pay to PBGC. PBGC reported total liabilities of $110.6 billion, of which $105.0 billion were the present value of future benefit payments. The total deficit of the single-employer program at the end of FY2013 was $27.4 billion. Since FY2002, PBGC has reported yearly deficits at the end of the fiscal year. Since its creation in 1974, PBGC has become the trustee of 4,557 single-employer pension plans and in FY2013 paid $5.4 billion in benefits to 799,210 end-of-FY2013 participants in these plans. PBGC is funded by cash flows from the premiums that pension plan sponsors pay, the assets of pension plans that are trusteed by PBGC, and dividends and interest from investments. PBGC Premiums

Each sponsor of a pension plan that is insured by PBGC pays annual premiums. Three Types of PBGC Premiums

PBGC collects three types of premiums: (1) a flat-rate, per- participant premium, (2) a variable-rate premium based on the dollar amount of a plan's underfunding, and (3) a per-participant premium payable for three years after a DB pension plan terminates. Plans that do not have enough assets set aside to pay 100% of the promised benefits are considered underfunded. The sponsors of underfunded DB plans pay an annual premium of $14 per $1,000 of underfunding. Plans that terminate under certain distress terminations or in a PBGC initiated termination are liable for a termination premium of $1,250 per plan participant per year for three years. In the 112 th Congress, The Moving Ahead for Progress in the 21 st Century Act (MAP-21; P.L. In the 113 th Congress, H.J.Res. 59 , which became P.L. 113-67 and was the vehicle for the December 2013 bipartisan budget agreement, increased PBGC premiums that the sponsors of single-employer DB pension plans pay but did not alter the structure of premiums. House FY2012 and FY2013 Budget Proposal s. The reports to H.Con.Res. 34 , the Concurrent Resolution of the Budget for Fiscal Year 2012, which was passed by the House on April 15, 2011, and H.Con.Res. 112 , the Concurrent Resolution of the Budget for Fiscal Year 2013, which was passed by the House on March 29, 2012, contained identical language that stated they did not assume the President's proposal but "recognized the need to reform PBGC to ensure that a future taxpayer funded bailout does not occur." The proposal would have replaced the variable-rate premium that is based on the amount of plan underfunding with a risk-based premium that would have been determined by the following factors: the risk of losses to PBGC; a plan's assets and liabilities; the financial condition of the plan's sponsor; PBGC estimated investment income; and any other factor PBGC's Board would have determined to be appropriate.
This report provides background and analysis of the premiums charged by the Pension Benefit Guaranty Corporation (PBGC), which is a government-owned corporation that was created in 1974 to protect the retirement income of participants in private-sector, defined benefit (DB) pension plans. When a company terminates a DB pension plan that does not have enough assets to pay 100% of the promised benefits, PBGC pays, in accordance with statute and up to a maximum yearly dollar amount, the benefits to participants in the terminated plan. In FY2013, 901,000 individuals received $5.4 billion in benefit payments from PBGC. An additional 617,000 workers will receive benefits when they retire.
PBGC consists of two insurance programs: (1) a multiemployer pension program, which protects the benefits of 10.4 million participants in collectively bargained DB pensions in which several employers make contributions, and (2) a larger single-employer pension program, which protects the benefits of 31.9 million participants in DB pensions operated by one employer for its eligible employees. Since FY2002, PBGC has ended each fiscal year with a deficit. The total deficit for the PBGC at the end of FY2013 was $35.6 billion. Most of this deficit is attributable to the single-employer program, which ended FY2013 with a deficit of $27.4 billion. At the end of FY2013, PBGC's single-employer program reported assets of $83.0 billion and liabilities of $110.6 billion. Most of PBGC's liabilities are future benefit obligations.
Although PBGC receives no congressional appropriations, its financial condition may be of interest to Congress. If PBGC's deficit persists, then cuts to benefits or U.S. government financial assistance could be necessary. PBGC is funded by a combination of insurance premiums paid by employers who sponsor DB pension plans, the assets of DB pension plans that are trusteed by PBGC, and income earned on the investment of the trusteed plan assets.
Some policymakers who are concerned by PBGC's financial position have renewed the calls for changes to the structure of the premiums that PBGC collects from employers. The suggested changes include increasing current premium levels or adding a premium that would better reflect a pension plan's potential liability to PBGC. PBGC collects three premiums from DB plan sponsors: (1) an annual flat-rate premium of $49 per participant; (2) an annual variable-rate premium of $14 per $1,000 of underfunding; or (3) a termination premium of $1,250 per plan participant per year for three years for pension plans that terminate under certain conditions.
Changes to PBGC's premium structure were included in the Department of Labor's FY2012 and FY2013 proposed budgets. In the 112th Congress, H.Con.Res. 34, the Concurrent Resolution of the Budget for Fiscal Year 2012, and H.Con.Res. 112, the Concurrent Resolution of the Budget for Fiscal Year 2013, recognized a need to reform PBGC but did not adopt the President's budget recommendations. In the 112th Congress, the Moving Ahead for Progress in the 21st Century Act (MAP-21; P.L. 112-141) increased the premiums levels but did not change the structure of the premiums that DB plan sponsors pay. In the 113th Congress, H.J.Res. 59 (P.L. 113-67), the vehicle for the December 2013 bipartisan budget agreement, increased PBGC premiums that the sponsors of single-employer DB pension plans pay. Proponents of changes to PBGC's premium structure argue that the current premium structure does not adequately reflect the risk to PBGC of some underfunded pension plans. Some have proposed that PBGC charge premiums based on the financial health of a DB plan sponsor. Although risk-based premiums would better allocate the risk of termination among DB plan sponsors, their implementation would raise additional concerns.