Have the actuaries at the Pension Benefit Guaranty Corp. been asleep at the wheel? 

That would be a forgivable response to the agency’s Nov. 17 annual report, which revealed a $42.4 billion projected deficit in the PBGC’s multiemployer plan, a more than five-fold increase since last year.

Absent legislative changes, the multi-employer program faces a 90 percent chance of running out of money by 2025, the report said. 

How could the deficit projections change so dramatically for the worse in such a short time, in a year that saw continued recovery in the economy and ongoing gains in equity markets? 

Chris Bone, director of PBGC’s policy, research and analysis department, says the answer to that question rests in part in the dire realities facing the sickest MEPs. It also can be found in changes the agency made in how it calculates a plan’s funding level – changes aimed at more accurately reflecting the state of affairs in MEPs today and the limited solutions they face. 

The Pension Protection Act of 2006 imposed stricter funding requirements on multiemployer plans, but it also gave them greater latitude in requiring employers to increase their contributions. 

Until the PBGC’s 2013 annual report, deficit estimates were based on the presumption that multiemployer plan sponsors and trustees would use the full range of options allowed by the PPA. 

But many plans, particularly those now deemed to be in critical status (meaning their funding ratio is below 40 percent), did not exhaust the options available to them. 

As that pattern repeated itself over several years, the PBGC set out to understand how multiemployer plans were using the power available to them under the PPA, and to what extent. 

What it discovered is that many plans were stopping short, though typically not by choice. 

Rather than risk hastening their demise, the plans in many cases undertook only the measures they considered reasonable under the circumstances. 

Raising employer contribution levels too high could prompt those companies to leave the plan entirely. Other plans reported they had filed rehabilitation plans that included contribution increases but couldn’t coax the unions representing workers in the plans to agree.

“Plans are making the decisions they are making in what they view as the best interest of the plan,” Bone said. “It’s not a question of neglect, but it is a reflection of the realities these plans face. We have to account for those realities. We have to make projections based on what actions they are taking. Not on actions they could be taking.” 

And that explains why this year’s MEP program deficit of about $42.5 billion is so much higher than last year’s roughly $8 billion figure. 

In making its projections, the PBGC runs 500 economic simulations on how plans might look under different market and funding scenarios.

The results, of course, are all different to one degree or another – with one exception. Under no scenario imagined by the PBGC will the multiemployer program enjoy a surplus.

Even more alarming is that in 73 percent of the scenarios the agency tested, all multi-employer assets would be depleted by the end of a 10-year projection period. 

“Most critical plans have raised contribution rates. Many have changed adjustable benefits. But the bottom line regarding our projections is that the plans can’t use 100 percent of the tools in PPA,” said Bone. Not in any practical way, anyway. 

The silver lining, if it could be called that, in the latest projections is that more dramatic increases are not expected in the years ahead, according to Bone. 

Assuming nothing is done, he said the MEP deficit is projected to grow to $50 billion over the next 10 years, meaning the bulk of the deficit shock was seen in this year’s report. 

Things actually could get better, said Bone, but only in a small percentage of PBGC’s models. The 15th percentile of projections, which account for the best outcomes in critical plans, show the deficit dropping to $27 billion in 10 years. 

But even under that scenario the PBGC’s MEP program would eventually fall into insolvency.

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