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Date: May 14, 2019

To: Ted Goldman

From: Steven Boyce

Mark Baba

Subject: Single-Employer and Multiemployer Program Sensitivity Analysis

Executive Summary

This report summarizes PRAD’s sensitivity analysis of certain PIMS modeling assumptions 

used in the FY17 Projections Report. Our analysis examines sensitivities of 10-year mean 

projected values of the Single-Employer Program’s and the Multiemployer Program’s net 

position under a market downturn scenario. We also examine mean values of 10-year 

cumulative claims and premiums with respect to assumptions about the potential for declining 

participation in single-employer pensions. Specifically, we analyze stress test scenarios 

examining effects of future occurrences of:

• better funded plans departing the single-employer system through standard terminations

• plans closing to new entrants

• plans freezing to eliminate any future benefit accruals.

As can be seen in Table 1, all of the test scenarios for declining future single-employer 

participation result in lower projections of PBGC’s mean net position. Each of these scenarios 

result in lower values of projected future claims, and also result in reductions in projected 

premium revenue that exceed the reductions in claims.

We also present analysis of a financial market stress test for both ME-PIMS and SE-PIMS. This 

analysis projects a repeat of 1999-2008 financial market patterns to illustrate the sensitivity of 

the projections to market downturns. For each of the models, the financial market stress test 

results in a mean projected net position worse than ninety five percent of the outcomes from the 

associated baseline projection. The results for both models are shown in Table 2.

Declining Participation Tests

SE-PIMS currently captures plan freezes and/or closures to new entrants that are already in 

effect as of the model’s data starting point. It does not, however, model any future plan freezes 

or closures and, other than plan terminations triggered by randomly simulated bankruptcy 

events, does not model any future voluntary plan terminations. The following scenarios test the 

sensitivity of mean projections of PBGC outcomes to different assumptions about possible 

future terminations, closures and freezes.
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Standard terminations of pension plans can occur only when their sponsors have fully secured 

all vested benefits of the plans’ participants, either through purchases of annuity contracts from 

insurance providers and/or lump sum payouts to participants. Thus, the better funded the plan, 

the better the financial feasibility for the sponsor of implementing a standard termination.

The analysis compared four scenarios to the baseline PIMS results as follows:

• Standard termination in 2020 for all plans at least 100% funded. For the first test 

scenario, we assume that any plan at least 100% funded, on an annuity purchase basis, 

as of the beginning of 2020 is immediately terminated. As shown in table 1, the result of 

this assumption is a $1.4 billion decrease in the mean present value net position for 

2027.

The plans that terminate under this assumption, being fully funded, present no insurance 

exposure to PBGC at the time of their terminations. Nor would they be a source of a 

variable rate premium revenue loss (assessed only on plan underfunding) at the time of 

termination.

However, given the random simulation of future financial market returns and liability 

valuation rates, there are paths in the simulations where some plan underfunding and 

insurance exposure would develop in the following years of the projection if the plans 

remained ongoing.

The assumption of standard terminations results in $0.1 billion decreases in the mean 

present values of both claim and variable rate premiums. The largest effect of the 

terminations on the revenues of PBGC is with the mean present value of the flat rate 

premium projection (assessed on the number of plan participants) which declines by $1.5 

billion, or 7.8%.

• Standard termination in 2020 for all plans at least 85% funded. The next test 

scenario expands on the number of standard terminations from the first test by assuming 

all plans at least 85% funded at the beginning of 2020 (on an annuity purchase basis) 

will immediately implement standard terminations, with sponsors contributing 

additional funds, if needed, to meet the full funding requirement for a standard 

termination.

With more plans being affected, and because plans having some underfunding and 

insurance exposure are included, the effects on claims and premiums are larger than the 

first scenario. The mean present value of projected claims falls by $1.3 billion, variable 

rate premiums fall by $0.7 billion and flat rate premiums by $4.7 billion. The mean 

present value of the 2027 net position falls by $3.7 billion.
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• Participant decline, all plans close to new entrants in 2020. The third test assumes 

that all plans that are not already closed to new entrants become closed as of 2020. Plans 

that close to new entrants will necessarily have decreasing numbers of total participants 

as time progresses, resulting in smaller flat rate premium collections. There will be no 

immediate decreases in plan liability values, but future years’ values of liabilities will be 

smaller as fewer and fewer active participants remain to accrue new benefits. With 

smaller liability values, there is reduced potential for growth in PBGC exposure, and in 

plan underfunding, that would arise under adverse conditions projected in some 

simulation paths.

As shown in Table 1, this assumption results in a mean present value decrease in the 

2027 net position of $1.5 billion. The present value of claims falls by $0.1 billon and the 

present value of variable rate premiums falls by a slightly larger amount, $0.4 billion.

The largest revenue decrease is with the flat rate premium which falls by $1.2 billion.

• All plans freeze benefits accruals in 2020. The fourth test assumes that all plans not 

already frozen will completely freeze all benefit accruals as of 2020. This has a similar 

effect on participant numbers as the closure to new entrants (the third test) and has no 

immediate effects on the value of plan liabilities at the time the freezes initiate. 

However, future years’ values of liabilities will be lower after removing the continued 

benefit accruals assumptions for existing participants. As shown in Table 1, this 

assumption results in a mean present value of the 2027 net position $0.8 billion lower 

than the baseline projection. The mean present value of projected claims falls by $3.2 

billion, while the mean present value of variable rate premiums falls by $2.4 billion. Flat 

rate premiums fall by $1.2 billion.
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Table 1: Declining Participation Stress Tests – Single Employer Program

Dollars in Billions

Mean Present 

Value of 2027 

Net Position

Mean 

Present 

Value of 

Claims 

2018-2027

Mean Present 

Value 

Variable 

Premiums 

2018-2027

Mean Present 

Value Flat 

Premiums 

2018-2027

Chance of 

Negative 

2027 Net

Position

Baseline $20.1 $17.1 $17.3 $19.3 16.7%

Standard Terminations, 

in 2020, For All plans 

At Least 100% Funded

18.7 17.0 17.2 17.8 18.1%

Standard Terminations, 

in 2020, For All plans 

At Least 85% Funded

16.4 15.8 16.6 14.6 20.2%

Participant Decline -

All Plans Close to New 

Entrants in 2020

18.6 17.1 16.8 18.1 19.0%

All Plans Freeze 

Benefit Accruals in 

2020

19.3 13.9 14.9 18.1 17.2%

Changes from Baseline*

Standard Terminations, 

in 2020, For All plans 

At Least 100% Funded

($1.4) ($0.1) ($0.1) ($1.5)

Standard Terminations, 

in 2020, For All plans 

At Least 85% Funded

(3.7) (1.3) (0.7) (4.7)

Participant Decline -

All Plans Close to New 

Entrants in 2020

(1.5) (0.1) (0.4) (1.2)

All Plans Freeze 

Benefit Accruals in 

2020

(0.8) (3.2) (2.4) (1.2)

* Individual figures may not sum or subtract due to rounding.
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Market Downturn Stress Tests

The baseline projections result from multiple simulations projecting plans through randomly 

generated paths of future interest rates, investment returns, sponsor bankruptcies (singleemployer) and changes to the numbers of active participants (which tends to be a more 

significant source of variation for multiemployer plans than for single-employer plans). With 

the market downturn stress test scenario, only one path of financial market events is projected, 

but the other sources of randomness remain.

For this stress test, we use the 1999-2008 historic period, the 10-year period that concludes with 

the most recent actual major market downturn. We recreate the financial market events of this 

period, by:

1. Starting the projection with the actual, end of year 2017, long-term Treasury bond yield 

and then projecting forward the same pattern of proportion changes that occurred to the 

yield over 1999-2008.

2. Given the projected Treasury bond yields, projecting forward annual corporate bond 

yields to have the same spread over Treasury yields that occurred during 1999-2008.

3. Projecting annual inflation rates to have the same differential with Treasury yields as 

occurred over 1999-2008.

4. Projecting annual nominal stock returns such that their inflation-adjusted values recreate 

those experienced over 1999-2008.

Table 2 shows the effects of this test on the mean present value of the projected 2027 net 

positions of PBGC’s single-employer and multiemployer programs. Under the test, the mean 

present value of the single-employer net position falls to a $20.2 billion deficit, a decline of

$40.3 billion. For comparison, the fifth percentile outcome from the baseline projection is an

$18.5 billion deficit.1

The mean present value of the multiemployer net position falls to a $125.1 billion deficit under 

the test, a decline of $57.0 billion from the mean baseline outcome. For comparison, the fifth 

percentile outcome from the baseline projection is a $117.2 billion deficit.

1 As presented in the 2017 Projections Report, available here: https://www.pbgc.gov/sites/default/files/fy-2017-

projections-report.pdf
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Table 2: Market Downturn Stress Test

Dollars in Billions

Mean Present 

Value of 2027 

Net Position

Change from 

Baseline* Comments

Single-Employer Baseline $20.1 -

Repeat of 1999-2008 Economy (20.2) (40.3)

A significant factor of the $40.3 B 

decline relates to this scenario’s poor 

investment returns. Lower returns on 

PBGC investments result in lower 

asset values and lower returns on 

plans’ investments result in higher 

values of projected claims.

This scenario also has declining 

interest rates which results in higher 

valuations of plan liabilities.

Multiemployer Baseline 

(assuming MPRA election rates) ($68.0) -

Repeat of 1999-2008 Economy (125.1) (57.0)

This scenario’s poor investment 

returns and decreasing interest rates 

result in lower plan asset values and 

higher values of plan liabilities.

However, given the relatively small 

value of assets relative to its current 

obligations, PBGC’s investment 

returns are not as significant a factor 

in the decline of the multiemployer 

program’s projected net position.

* Individual figures may not sum or subtract due to rounding.

Conclusions

Declining numbers of pension plans and insured participants have the potential to adversely 

affect PBGC’s ability to adequately insure pension promises, particularly if low-risk plans 

depart and leave PBGC to insure mostly high-risk plans. The tests we have performed here 

involve terminations or freezes of large portions of the universe of plans insured by PBGC. 

Each of those tests results in a decline in the mean projected outcome for PBGC’s financial 

position. However, the magnitude of those changes is relatively small compared to that seen in 

the financial market stress test. Financial market risks remain the most significant of the risks to 

PBGC’s insurance programs. Continued analysis and monitoring of risk transfer and frozen 

plan termination activity will help inform future PIMS modeling.
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Appendix 1 ‐Declining Participation Tests (15th and 85th Percentile Results)

For illustrative purposes, Table 3a shows the same 10-year values as discussed in Table 1, 

except the results shown are at the 15th percentile (rather than the mean). Care should be taken 

when interpreting these results. For example, the 15 percent of economic and bankruptcy paths 

that produce the lowest present value of 10-year cumulative claims is not the same as those 

producing the 15th percentile of 2027 Net Position. Table 3b shows the 85th percentile results.

Table 3a: Declining Participation Stress Tests – Single Employer Program

Dollars in Billions

15th 

Percentile 

Present Value

of 2027 Net 

Position

15th 

Percentile 

Present Value 

of Claims 

2018-2027

15th 

Percentile 

Present Value

Variable 

Premiums 

2018-2027

15th 

Percentile 

Present Value 

Flat Premiums 

2018-2027

Baseline ($2.2) $4.2 $6.9 $18.9

Standard Terminations, in 2020, For 

All plans At Least 100% Funded (3.0) 4.2 6.9 16.9

Standard Terminations, in 2020, For 

All plans At Least 85% Funded (4.7) 3.9 6.9 11.9

Participant Decline - All Plans 

Close to New Entrants in 2020 (3.8) 4.2 6.9 17.7

All Plans Freeze Benefit Accruals in 

2020 (2.3) 3.0 6.4 17.7

Changes from Baseline*

Standard Terminations, in 2020, For 

All plans At Least 100% Funded ($0.8) ($0.0) ($0.0) ($2.0)

Standard Terminations, in 2020, For 

All plans At Least 85% Funded (2.5) (0.3) (0.0) (7.0)

Participant Decline - All Plans 

Close to New Entrants in 2020 (1.6) (0.0) (0.0) (1.1)

All Plans Freeze Benefit Accruals in 

2020 (0.1) (1.2) (0.5) (1.2)

* Individual figures may not sum or subtract due to rounding.
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Table 3b: Declining Participation Stress Tests – Single Employer Program

Dollars in Billions

85th 

Percentile 

Present Value

of 2027 Net 

Position

85th 

Percentile 

Present Value 

of Claims 

2018-2027

85th 

Percentile 

Present Value

Variable 

Premiums 

2018-2027

85th 

Percentile 

Present Value 

Flat Premiums 

2018-2027

Baseline $40.2 $30.7 $29.6 $19.7

Standard Terminations, in 2020, For 

All plans At Least 100% Funded

38.9 30.5 29.4 18.9

Standard Terminations, in 2020, For 

All plans At Least 85% Funded

36.2 28.3 28.6 17.6

Participant Decline - All Plans 

Close to New Entrants in 2020

38.9 30.6 28.9 18.5

All Plans Freeze Benefit Accruals in 

2020

38.5 25.7 25.5 18.5

Changes from Baseline*

Standard Terminations, in 2020, For 

All plans At Least 100% Funded ($1.4) ($0.2) ($0.2) ($0.8)

Standard Terminations, in 2020, For 

All plans At Least 85% Funded (2.5) (0.3) (0.0) (7.0)

Participant Decline - All Plans 

Close to New Entrants in 2020 (1.3) (0.1) (0.8) (1.2)

All Plans Freeze Benefit Accruals in 

2020 (1.7) (5.1) (4.1) (1.2)

* Individual figures may not sum or subtract due to rounding.
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Appendix 2 ‐Impact of the assumed Standard Terminations in 2020 on Flat Rate Premiums

Table 4 below provides some additional detail regarding the magnitude of the assumed 

Standard Terminations in 2020 assumed for purposes of the first 2 sensitivity tests. Both are 

assumed to be one-time events which result in the standard termination of any plan meeting the 

specified percent Funded criteria (either 100% or 85% on a Standard Termination Basis).

Table 4: Impact of the assumed Standard Terminations – Single Employer Program

Percent drop 

in Fixed Rate 

Premiums 

received in 

2021

Dollar drop in 

Fixed Rate 

Premiums 

received in 

2021*

Participants 

involved in the 

assumed 

Standard 

Terminations

Standard Terminations, in 2020, For 

All plans At Least 100% Funded

10.1% $0.2 billion 2.5 million

Standard Terminations, in 2020, For 

All plans At Least 85% Funded

30.7% $0.7 billion 7.7 million

Note: Figures shown are the change from the Baseline mean 2021 Fixed Rate premium receipts of $2.2 billion.

* Each year after 2021 similarlyaffected.