Financial Condition of PBGC’s Single-Employer and Multiemployer Programs Has Improved, but Some Concerns Remain

PBGC’s financial condition has improved greatly over the past few years, and both of its insurance programs currently have a surplus. As shown in figure 1, the single-employer program moved from a deficit of $2.9 billion in 1993 to a surplus of $3.5 billion in 1997. The number of single-employer plans insured by PBGC has declined significantly since the mid-1980s; however, the number of participants has increased slightly. Offsetting the decline in the number of small plans has been growth in the number of plans with 10,000 or more participants. The number of multiemployer plans and participants has remained relatively stable since the early 1980s. Despite the improvement in multiemployer plan funding since 1980, some large plans remain underfunded and could pose a risk to the multiemployer program. However, in its 1996 report on the financial condition of the multiemployer program, PBGC reported that it expected the multiemployer insurance program to remain financially strong, even with the decline in the contribution base. Despite PBGC’s Improved Financial Condition, Long-Term Risks Remain

Although PBGC’s financial condition has significantly improved over the past few years, risks remain from the possibility of an overall economic downturn or a decline in certain sectors of the economy, substantial drops in interest rates, and actions by sponsors that reduce plan assets. A lower interest rate would reduce the future returns on a given level of assets and require that the amount of assets be increased to ensure that all benefit liabilities could be paid.Lower interest rates increase (1) the calculated liabilities from plans administered by PBGC, (2) the number of ongoing underfunded plans, and (3) PBGC’s potential liabilities from ongoing underfunded plans. PBGC Is Improving Efforts to Forecast Its Future Financial Condition

PBGC’s limited ability to protect itself from exposure makes accurately forecasting its financial condition especially important, because it gives PBGC and the Congress time to enact policy and legislative changes to improve the long-term viability of the insurance programs. It is also increasing its oversight activities and working with plan sponsors to reduce the administrative burdens on plans. Plan Monitoring

PBGC has also improved its monitoring of underfunded, single-employer pension plans. Its Early Warning Program targets plans that pose the greatest risk to the agency because of underfunding. Conclusions

While PBGC’s financial condition has significantly improved, risks to the long-term financial viability of the insurance programs remain. Continued underfunding among some large plans poses a risk to the agency. In addition, PBGC’s current methodology for forecasting the future financial condition of the single-employer program does not take into account the range of economic conditions that can result in plan terminations, nor does it measure the probability that such future terminations will result in claims. PBGC has made significant progress in addressing the financial systems and internal control weaknesses that had plagued the agency for many years. PBGC Efforts to Improve Forecasting Methodologies

The Pension Benefit Guaranty Corporation (PBGC) is required to annually provide an actuarial valuation of the single-employer program’s expected operations and financial status over the next 5 years.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the long-term financial viability of the pension insurance programs, focusing on: (1) the financial condition of the insurance programs and trends in the plans they insure; (2) the impact the Retirement Protection Act of 1994 has had on the financial condition of the Pension Benefit Guaranty Corporation (PBGC) and insured plans; (3) risks to PBGC's solvency; (4) PBGC's efforts to forecast its future financial condition; and (5) PBGC's efforts to improve administration of the programs.

What GAO Found

GAO noted that: (1) PBGC's financial condition has improved significantly over the past few years; (2) the agency has had a surplus for the past two fiscal years, after having a deficit for over 20 years; (3) the single-employer program improved from a deficit of $2.9 billion in 1993 to a surplus of nearly $3.5 billion in 1997; (4) the multiemployer program has maintained a surplus since the early 1980s; (5) like that of PBGC, the financial condition of most insured, underfunded plans has also improved, but underfunding among some large plans continues to pose a risk to the agency; (6) the improved financial condition of both PBGC and the plans it insures has resulted from better funding of underfunded plans and economic improvements; (7) over the past decade, the number of insured single-employer plans has fallen by more than one-half, to about 43,000, because of the termination of many small plans; (8) the number of participants, about 33 million, has increased slightly because of an increase in the number of large plans; (9) the number of multiemployer plans and participants has remained relatively stable since the early 1980s; (10) the declining number of active workers participating in multiemployer plans could increase the level of unfunded liabilities and place increased financial burdens on the multiemployer program; (11) PBGC experienced an increase in premium revenue immediately following passage of the legislation that contributed to its improved financial condition; (12) despite improvements in PBGC's financial condition, risks to the agency's long-term financial viability remain; (13) factors beyond PBGC's control could increase plan underfunding and PBGC's liabilities by reducing the future returns on assets; (14) PBGC is developing a new single-employer program forecasting model designed to estimate the probability of bankruptcies and terminations of underfunded plans under various economic conditions; (15) in addition, PBGC has already improved its methodology for forecasting the financial status of the multiemployer program; (16) PBGC has also improved its techniques for estimating its liability for plans that are likely to require future financial assistance and is now more closely monitoring the companies with underfunded plans that represent its biggest risks; and (17) while PBGC has made progress, it is important that it continue its efforts to reduce the time it takes to assume control of terminated plans, improve the timeliness of final determinations of participants' benefits, and monitor the performance of contractors that assist PBGC in administering the insurance programs.