Projections

Report

FY 2014
FY 2014 PBGC PROJECTIONS REPORT

SUMMARY

The Pension Benefit Guaranty Corporation (PBGC) guarantees single-employer and

multiemployer defined benefit pension plans in separate insurance programs. Although

both programs insure pension participants against loss when a pension plan fails, the

amount of benefits guaranteed, the point at which the guarantees apply and the funding

sources are quite different.

This report looks first at PBGC’s multiemployer program, which covers roughly onequarter of private sector defined benefit pension participants, but has deficits exceeding

those of the single-employer program. As shown in this report, recent legislation is

expected to postpone the date that PBGC’s multiemployer program fund is likely to run

out of money and could significantly reduce the magnitude of future program deficits,

but it does not fully resolve the issues facing the program and the participants whose

benefits it guarantees.

New results for PBGC’s single-employer program are broadly consistent with findings of

the prior year’s report – the financial status of the program is likely to improve but stay in

net deficit over the 10-year projection period.

Multiemployer Plans Most multiemployer plans are projected to remain solvent over

the next 10 years, but a core group of plans appear unable to raise contributions

sufficiently to avoid insolvency.The Multiemployer Pension Reform Act of 2014

(referred to as Kline-Miller or MPRA) was enacted in December 2014, to improve the

financial outlook of multiemployer plans and of PBGC’s multiemployer program. For

some plans facing insolvency within the next twenty years, MPRA allows trustees to

permanently reduce benefit promises to participants if, by “suspending benefits,” the

plan can remain solvent over the long term and preserve benefits at levels above the

PBGC guarantee amounts. MPRA also provides additional premiums to fund PBGC’s

multiemployer program and gives PBGC new ways to help plans remain solvent by

providing financial assistance by plan partition or merger.

This report reflects how plan sponsors may utilize MPRA and also reflects changes in our

model of the multiemployer system that further improve our estimates of plan benefit

outflows, recognize PBGC’s establishment of a reserve for small plans on its books, and

use updated mortality tables.

After updating the model, and incorporating the premium increases and other provisions

under MPRA, but assuming no plans elect suspensions or partitions, PBGC’s projected

2024 multiemployer deficit averages $44.3 billion discounted to today’s values.1 The

solvency of the multiemployer program fund is extended by three years; the

multiemployer program fund is more likely than not to run out of money in 2025 rather

than 2022.

1 This is the mean present value of the 10-year (2024) projections. “Insolvent”, “Deficit”, and “Claims are defined

and discussed in the section “Financial Obligations” beginning on page 4.

PENSION BENEFIT GUARANTY CORPORATION 1 FY 2014 | PROJECTIONS REPORT
Using best estimate assumptions2 as to whether plans and participants will elect to use

suspension and partition under MPRA, yields a projected 2024 deficit averaging $28.0

billion in comparable terms, and would significantly change the future prospects of plans

and participants that elect to make changes. Improvements in the near-term solvency of

PBGC’s multiemployer program are primarily due to MPRA’s premium increases; while

future suspensions and partitions reduce the amount of long-term liabilities for the

program, they do not significantly change the risk of near-term program insolvency. The

discussion of the multiemployer simulations begins on page 6; the changes in the model

and assumptions are detailed beginning on page 22.

Single-Employer Plans The single-employer simulations continue to show that

improvements in the program’s net position are likely, but by no means guaranteed,

throughout this decade, with a mean present value of the projected 2024 deficit of $4.9

billion. There is significant variation around this mean outcome. This year’s report

incorporates a number of improvements to the model, including a more robust model of

hybrid plans, market-based recalibration of certain bankruptcy risks, and the use of updated

mortality tables. These single-employer results are detailed beginning on page 26.

2 PBGC developed assumptions regarding the plans and participants that will elect benefit suspensions and

partitions. These assumptions reflect input from various parties, the statutory and regulatory constraints that

sponsors must meet, and estimates of the likelihood of participants voting to overturn the suspension. More

information on the assumptions can be found in the section “Assumed Utilization of MPRA Suspension and

Partition” beginning on p.18.

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Contents

SUMMARY..............................................................................................................1

Multiemployer Plans.....................................................................................................1

Single-Employer Plans...................................................................................................2

Multiemployer Program .........................................................................................6

Single-Employer Program...................................................................................... 26

Statement of Actuarial Opinion............................................................................. 38

Appendices........................................................................................................... 39

Table of Figures

Figure 1 – PBGC’s Safety Net is Less Effective for Future Insolvencies................................................................9

Figure 2 – Multiemployer Program Insolvency Risks Deferred............................................................................10

Figure 3 – Multiemployer Net Position Deficit Likely to Remain High Absent Future Benefit Suspensions.........12

Figure 4 – Future Benefit Suspensions Likely to Reduce Deficit ..........................................................................13

Figure 5 – ME Net Position, Absent Future Suspensions and Partitions, Shows Wide Range of Potential

Outcomes, None Positive ......................................................................................................................................16

Figure 6 – Assumed Future Suspensions Reshape the Risks to the Insurance Program.......................................17

Figure 7 – Sensitivity of Assumptions Regarding Election of Suspension / Partition ...........................................20

Figure 8 – ME Changes from Last Year's Projections .........................................................................................21

Figure 9 – ME Changes due to Assumed Use of MPRA Suspension/Partition......................................................21

Figure 10 – Reconciliation of Changes in ME-PIMS Results...............................................................................22

Figure 11 – Single-Employer Net Position Will Likely Improve ...........................................................................27

Figure 12 – Single-Employer Net New Claims.....................................................................................................29

Figure 13 – Single-Employer Program Investment Income..................................................................................31

Figure 14 – PBGC's Potential 2024 SE Financial Position .................................................................................33

Figure 15 – SE Financial Position: Comparison to Prior Year............................................................................34

Figure 16 – Reconciliation of Changes in SE-PIMS Results.................................................................................35

Frequently Used Abbreviations

FY Fiscal Year

ERISA Employee Retirement Income Security Act of 1974 as amended

ERM Critical status plans that have determined they have “Exhausted all Reasonable Measures”

HATFA Highway and Transportation Funding Act of 2014

MAP-21 Moving Ahead for Progress in the 21st Century Act

ME Multiemployer

MPRA Multiemployer Pension Reform Act of 2014

PPA06 Pension Protection Act of 2006 as amended

PBGC Pension Benefit Guaranty Corporation

PIMS Pension Insurance Modeling System

PV Present Value

SE Single-Employer

PENSION BENEFIT GUARANTY CORPORATION 3 FY 2014 | PROJECTIONS REPORT
About This Report

This report contains estimates and projections for both PBGC’s multiemployer and

single-employer programs that begin with the values presented in PBGC’s most recent

Annual Report, as of the end of Fiscal Year 2014, and then project over the following

decade and beyond, based on current economic conditions, and current law.3 To make

the projections, PBGC uses two stochastic modeling systems: the Multiemployer Pension

Insurance Modeling System (ME-PIMS) and the Single-Employer Pension Insurance

Modeling System (SE-PIMS). Each relies on running many simulations to derive a range

of possible future outcomes. The report uses averages and ranges to summarize the

simulations, but there is no single projection that represents the expected results under

either program.

This report is an actuarial evaluation. The standard for such evaluations is that the

estimates be reasonable and based on the use of reasonable methods and assumptions. In

the professional opinions of the signers, this report meets those standards.

The values shown are estimates, not predictions. They reflect a range of values that might

result based on the assumptions and behavioral relationships that underlie the projection

Models. The values are highly dependent on the stochastic projection of many, highly

variable factors, such as future interest rates, future equity returns, and future decisions

by plan sponsors. The actual results that ultimately occur in future years can, and

likely will, vary materially from the projections in this report.

The Wide Range of Possible Outcomes

To illustrate the uncertainty inherent in projecting even the near future, this report shows

a wide range of possible outcomes associated with a given set of assumptions. These

include mean (average) values and “high,” median and “low” values projected for key

outcomes for fiscal years 2015 to 2024. To demonstrate potential variation, the “high”

value is set at the eighty-fifth percentile (i.e., 85 percent of the outcomes are lower), the

median value at the fiftieth percentile, and the “low” value at the fifteenth percentile.

While the “high” to “low” range represents the bulk of projected outcomes,4 almost a

third of projected results lie above or below the “high” to “low” range. Because these

“tail” results may be important, the report also presents discussions of the full

distributions of projected financial positions for both programs.

Financial Obligations

The report presents two types of financial obligation measures: (1) liabilities (and assets)

stated on a present value basis and (2) year by year cash flows.

3 This Projections Report generally uses data and assumptions as of September 30, 2014 (the end of FY2014), but

includes legislated changes to premiums enacted through December 2014 and other changes due to MPRA as

noted.

4 Some outcomes are year-by-year results, such as investment income in each year; they show a fairly constant

amount of yearly variation. For other categories, such as the net position of the single-employer program, each

year affects the next. This produces a cumulative effect, yielding more uncertain results with each passing year.

(This cumulative effect is muted in the multiemployer program’s position, where the program’s few assets are a

fraction of the value of net new claims.)

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PBGC’s liabilities reflect the discounted present value of the retirement benefits PBGC

pays for the lifetime of participants and their beneficiaries; these retirement benefits are

generally guaranteed benefits with adjustments as set forth in ERISA and

regulations. “Claims” are newly recorded (lifetime) liabilities less any associated assets and

recoveries; they are generally recorded on PBGC’s books when the payment of 

guarantee amounts is probable. The amount that PBGC “books” is the present value of

benefits payable to participants and their beneficiaries for their lifetimes plus associated

expenses that PBGC would provide under the rules governing the guarantee program, less

the present value of any assets or other recoveries. Discussions of PBGC’s deficit, 

net position, financial position and net financial position all reflect the discounted present

value of lifetime total liabilities in excess of total assets as of a certain date.

The report also looks at year-by-year cash flows. Discussions of plan or PBGC

insolvency focus primarily on the sufficiency of plan assets, investment returns,

contributions or premiums, and other income to meet benefit payments and expenses for

a particular year; i.e., the report uses the term “insolvent” to mean lacking the funds to

pay current benefits and expenses for a year.

About the PIMS Models

The PIMS Models are the best available tools for this analysis; but like most models, they

are subject to limitations. The Models are continually revised in light of changing law,

plan sponsor behavior, and PBGC’s understanding of that behavior. Major modeling

changes for this 2014 Projections Report include explicit modeling of cash balance plans

in SE-PIMS, rewriting of ME-PIMS to better reflect benefit cash outflows for individual

plans, changes to ME-PIMS due to MPRA, and the adoption of updated mortality tables

for calculating underfunding.

In addition, PBGC carefully considers comments from users and peer reviews of PIMS

and uses them to identify additional areas for improvement.5 The improvement of

PBGC’s Models and their documentation is an ongoing and continuing process. While

both ME-PIMS and SE-PIMS can simulate demographic and economic factors up to 20

years into the future, they do not model all longer-term sources of uncertainty affecting

the pension system.

Estimated multiemployer program deficits and financial assistance shown in this report

assume that PBGC will provide benefits in accordance with the current level of

guarantees rather than reducing guarantee levels to those affordable by premiums.6 This

evaluation assumes no changes to the current law for both multiemployer and singleemployer plans (as amended by the Highway and Transportation Funding Act of 2014

(HATFA) and MPRA).

5 For more information on PIMS including links to user publications and peer review papers see the PIMS Web 

Page: http://www.pbgc.gov/about/projections-report/pension-insurance-modeling-system.html

6 This enables the measurement of the size of the promised benefits from the PBGC program and the resources

PBGC has to meet those payments. Under current law [ERISA §4022A(f)(2)(C)], if premiums and PBGC fund

assets are insufficient to pay guaranteed benefits, and Congress does not act on a formal PBGC submission of

alternative actions, guarantees are reduced to the level affordable by premiums.

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MULTIEMPLOYER PROGRAM

Multiemployer Program..........................................................................................6

Multiemployer Program Overview............................................................................6

PBGC’s Guarantee in Future Plan Insolvencies...........................................................8

Will PBGC Have Funds to Pay Multiemployer Guarantees? ........................................9

Summary Projections ............................................................................................. 11

Projected Net Position ............................................................................................................................................11

Sources of Uncertainty: Multiemployer Program....................................................................................................13

Projected Net New Claims ......................................................................................................................................14

PV Financial Assistance Payments...........................................................................................................................17

Assumed Utilization of MPRA Suspension and Partition .......................................... 18

Variability in Projected Financial Position, Multiemployer Program ......................... 20

Reconciling ME-PIMS Results from 2013 to 2014 ..................................................... 22

Sensitivity of Changes to the Model and Discount Rate ........................................... 24

Multiemployer Program Overview

The current multiemployer system, covering more than 10 million participants in about

1,400 plans, remains under severe stress. Multiemployer plans are collectively bargained

plans that are maintained by one or more unions and multiple companies, generally in the

same industry or as members of an association.

By law, PBGC’s insurance program for multiemployer plans operates differently than its

single-employer program. The insured event is plan insolvency (i.e., insufficient funds to

pay anticipated benefits and expenses for a year). Even after a plan becomes insolvent,

PBGC does not take over the administration of an insolvent multiemployer plan, but

rather provides financial assistance to cover the plan’s guaranteed benefits and its

expenses.7 Multiemployer plans’ premium rates for PBGC coverage are lower than those

for single-employer plans and are based solely on participant count.

Last year’s report compared the guarantee amounts available to participants under the

single-employer and multiemployer systems. It noted that the multiemployer guarantee

amounts were structurally lower, were generally only partial, and varied by years of

service. But given that benefit amounts in multiemployer programs are generally more

modest than in single-employer programs8 it left open the question as to how well the

guarantees worked for actual multiemployer participants. PBGC subsequently studied

this issue and found that, to date, PBGC’s multiemployer guarantee has provided

coverage for the full pension amount to most participants in insolvent plans.9 But

7 Technically this financial help is in the form of loans. However, with one exception over PBGC’s history, the

loans have never been repaid.

8 As a measure of benefit generosity, PBGC examined the median target normal cost for single-employer plans for

plan years beginning in 2012 and found a value exceeding $5,500 per active worker, net of administrative

expenses. Multiemployer plans report a similar number on a somewhat more conservative set of assumptions (i.e.,

on a basis which would tend to show higher numbers) for the median cost of annual benefits accruing of

approximately $4,600 per active worker.

9 In the past year, PBGC completed a study of the benefits in its multiemployer program. According to the results

of this study, 79 percent of participants in multiemployer plans that were receiving PBGC financial assistance for

PENSION BENEFIT GUARANTY CORPORATION 6 FY 2014 | PROJECTIONS REPORT
looking ahead, many more participants are likely to experience significant benefit

reductions if their plans become insolvent.

Furthermore, even that reduced level of benefits is at risk because PBGC’s

multiemployer program faces a high likelihood of long-term insolvency, even after taking

into account the increase in multiemployer premiums under MPRA.10 If and when the

program becomes insolvent, the only funds available to support benefits would be the

premiums that continue to be paid by remaining plans; this would result in benefits being

cut much more deeply, to a small fraction of current guarantees.

MPRA gives plans additional options to address the risk of insolvency,11 but requires

difficult choices of plan sponsors and participants. Under MPRA, a “critical status”12

plan that is projected to be insolvent within 20 years (15 years in some cases), is

determined to be in “critical and declining” status. “Critical and declining” plans are

allowed but not required to apply to the Department of the Treasury to “suspend”13

benefits if they have undertaken all other reasonable measures and if doing so would

allow the plan to remain solvent over the long term and continue to provide benefits at

least 10 percent higher than the level of the PBGC guarantee, with further protections

for the aged and disabled. Thus plan sponsors and participants in plans likely to become

insolvent face a difficult choice; whether to act early to make near-term benefit cuts that

are anticipated to keep benefits above PBGC’s guarantee levels and preserve the plan

over the long term, or not to take early action and risk deeper cuts upon insolvency.

MPRA further changes PBGC’s ability to provide financial assistance through a plan

partition. In a partition, the trustees of a “critical and declining” plan request that PBGC

take on responsibility for paying a portion of the plan’s benefit liabilities. This is done by

creating a new “successor” plan, which covers guarantee amounts for some participants

and is supported by PBGC financial assistance. In order to receive partition assistance,

the plan must take all reasonable measures to avoid insolvency including the maximum

benefit suspensions, if applicable. In addition, PBGC must certify that a partition does

not impair PBGC’s ability to meet its obligations to certain other plans.

In light of PBGC’s limited financial resources, the impairment test will constrain the

number of plans to which PBGC will be able to provide partition assistance. To enable

review of the impact of those constraints, this report generally presents two sets of

results: (1) assuming no (additional) plans will elect to use suspensions or partitions under

FY 2013 received the full amount of their monthly benefit. But only 49 percent of participants in plans that were

already terminated and expected to need such assistance in the future will receive their full monthly benefit

amounts. The study can be found at http://www.pbgc.gov/documents/2015-ME-Guarantee-Study-Final.pdf.

10 Based on the increased PBGC premium level under MPRA, but no projection of the use of MPRA suspensions

and partitions, it is more likely than not that PBGC’s multiemployer program will deplete its assets in 2025; that

likelihood increases to 91 percent by 2032.

11 Independent of these changes, MPRA doubled PBGC premiums from what they would have otherwise been in

plan years beginning in 2015 and going forward. Unless explicitly stated otherwise, these higher premiums are

recognized in PBGC’s multiemployer projections.

12 Under the Pension Protection Act of 2006 (PPA06), a plan is considered to be in “critical status” if it is projected

to run out of money to pay benefits or expenses or fail to meet minimum funding standards over the relatively

near term. A series of tests are set forth in Internal Revenue Code §432(b)(2).

13 The suspension of benefits may include permanent and/or temporary reductions of current and future benefit

payments.

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MPRA and (2) using estimates of the percentage of “critical and declining” plans that will

make use of the suspension and partition provisions, using best assumptions as to how

the process will operate. The latter results should be interpreted in the light of the

challenges and uncertainties outlined later in this report beginning on page 18.

This Projections Report also reflects three other major changes to ME-PIMS, aside from

those related to MPRA. These changes (1) improve the modeling of benefit outflows by

plans, and in particular the estimate of service-related guarantee amounts, (2) update

estimates of longevity by applying a new mortality table and (3) increase the number of

sample plans in the Model. These changes are discussed beginning on page 22.

The estimate of the average projected deficit has been reduced from last year’s projected

2023 mean present value deficit of $49.6 billion to this year’s $44.3 billion in 2024,

assuming no future suspensions and partitions under MPRA. Using the stated

assumptions about suspensions and partitions under MPRA reduces the deficit

significantly, to $28.0 billion.

The date when PBGC’s multiemployer program is estimated to have a greater than 50

percent likelihood of insolvency is deferred by three years, from 2022 to 2025. This result

holds whether or not we assume plans and participants will elect to make use of

suspensions and partitions. The risk of insolvency rises rapidly after the 10-year period,

reaching over 90 percent by the end of the first 20 years.

The Model runs 500 simulations of the economy and how plans react to changes. While

these results are highly variable, none of the simulations show PBGC’s program in

surplus. Instead, the Model shows PBGC’s multiemployer program will have a net deficit

in 100 percent of our 10-year projection scenarios.

PBGC’s Guarantee in Future Plan Insolvencies

The 2013 Projections Report compared the structure of the PBGC multiemployer

guarantee to that of the single-employer guarantee. That analysis showed that the

multiemployer guarantee generally provided smaller amounts than the single-employer

guarantee did and that the multiemployer guarantee provided only partial coverage above

relatively small levels. However, multiemployer plans also tend to have lower benefit

levels. Thus the impact of the different guarantee structure on participants was still

unclear.

Participants who will come to rely on PBGC’s multiemployer guarantee are covered by

plans in three categories: (1) plans that are already insolvent, (2) plans that have already

terminated but have not yet run out of money, and (3) ongoing plans. For the 2015

Multiemployer Guarantee Study, PBGC was able to collect representative data on

participants in the first two categories to assess how the guarantee operated for actual

individual participants. That study shows that the multiemployer guarantee structure

generally provided for payment of full accrued plan benefit levels to almost 80 percent of

participants in plans that became insolvent in the past. However, the level of coverage

declines significantly in plans that have already terminated but not yet become insolvent.

This is due to the higher level of benefits in these plans.

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Figure 1 – PBGC’s Safety Net is Less Effective for Future Insolvencies

Data of comparable quality were not available for participants in ongoing plans that are

likely to become insolvent. However, the study did show that benefit levels for those

plans were generally higher than in terminated plans and the percentage of benefits

guaranteed would likely be even less than in terminated plans.14

Will PBGC Have Funds to Pay Multiemployer Guarantees?

Participants in insolvent plans also face the risk that PBGC’s guarantee fund itself will

run out of money to provide financial assistance, so that it will be unable to pay even the

current level of guarantees. This and following sections examine that risk.

The multiemployer guarantee program remains at risk of running out of money.

This year’s projections show it is more likely than not that the program will run out of

money in 2025. At the end of the 10-year projection period ending in 2024, its assets are

depleted in approximately 43 percent of the scenarios. Program risk continues to rise

over time, reaching 90 percent by 2031 and 93 percent by 2034.

The near-term risk of running out of money has decreased. The risk that the

multiemployer fund will become insolvent has decreased, particularly over the short term,

when compared to the prior (FY2013) report.

The 2013 Projections Report showed the multiemployer program becoming insolvent in

73 percent of simulations by 2023 (a 10-year projection period). As shown in the

following Figure 2, this year, the projected risk of insolvency by 2023 has decreased to 23

percent. However, this represents primarily a deferral of the risk -- the longer term risk of

insolvency remains above 90 percent at the end of the 20-year projection period.

14 ME study (http://www.pbgc.gov/documents/2015-ME-Guarantee-Study-Final.pdf ) – Figure 4.

Plans Insolvent as of FY13

79% of Participants

Receive Their

Full Plan Benefit

Plans Already Terminated But

Not Yet Insolvent as of FY13

49% of 51% of

Participants Participants

Receive Face

Their a Reduction

Full Plan

Benefit

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The columns in the following chart compare the final results for the prior (FY13) and

current (FY14) insolvency risk projections; the lines show results at interim stages.

Comparing the column for the FY13 projections with the upper line in the chart shows

that the reduction in near-term risk is due primarily to better modeling of plan benefit

outflows as well as to changes in data and the economy. Comparing that line to the line

below it shows that the larger reduction in medium-term risk is due to the additional

premiums assessed under MPRA. Finally, comparing the second line to the FY14 results

shows that the assumed suspensions and partitions have a very small effect on insolvency

risk.

Figure 2 – Multiemployer Program Insolvency Risks Deferred

Because PBGC’s ability to offer assistance to plans is constrained by its resources, and it

must certify to Congress that offering partition or merger assistance will not impair its

ability to provide assistance to certain other plans, this report reflects an assumption that

the number and format of partitions will be limited so as to not significantly change

PBGC’s insolvency risk. Thus the insolvency risk after reflecting future suspensions and

partitions is very similar to that shown when reflecting only the premium increases under

MPRA, without any assumption as to future suspensions and partitions.

23%

Multiemployer Program Insolvency Risks

Deferred

100%

73%

50%

0%

2014 2019 2021 2023 2025 2030 2032

FY13 Projections

FY14 Pre-MPRA

FY14 Reflecting Future Suspensions / Partitions

FY14 MPRA--Premiums Only

Chance of Insolvency

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Summary Projections 

Projected Net Position

The 10-year projections show the multiemployer program’s net position as somewhat

improved from last year’s projections, even before considering any future election of

benefit suspensions and partitions by plans under MPRA. The net position is projected 

to further improve significantly should plans utilize suspensions and partitions. ME- PIMS

projects that PBGC’s 2024 multiemployer obligations, will be lower than last year’s

projections (a mean deficit of $44.3 billion in 2024 compared to the previous projection

of a mean deficit of $49.6 billion), prior to the usage of MPRA suspensions and

partitions. This projected mean deficit (after discounting to present value) is somewhat

higher than the current deficit of $42.4 billion shown in the September 30, 2014 financial

statements. Incorporating best estimates of how plans will use suspension and partition,

the 10-year mean projected deficit is significantly lower, falling to a mean present value of

$28.0 billion in 2024.

The following chart (Figure 3) shows the FY 2015 through 2024 present values of the

projected multiemployer net position (the squares and dotted lines) in contrast to the

actual historical net positions (the solid line ending in fiscal year 2014). It assumes no

future benefit suspensions or partitions under MPRA. It also illustrates the large change

in the historical net position from 2013 to 2014, as discussed in PBGC’s 2014 Annual

Report.

For each future year, the chart shows the mean outcome for each year as a large square,

as well as the range between the fifteenth percentile (15 percent of the outcomes are

worse in that year) and the eighty-fifth percentile (15 percent of the outcomes are better).

These are the present values of PBGC’s deficit (i.e. negative net position), assuming that

PBGC had been able to borrow any amounts needed in previous years to meet its

financial assistance obligations at current guarantee levels if assets and premiums are

insufficient to provide the guarantees. The resulting deficit is the amount of present

value of future financial assistance as of that year, less projected assets, plus any amounts

borrowed (with interest) in order to continue to provide the current schedule of

guarantees and financial assistance in years prior to the projection date.

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Figure 3 – Multiemployer Net Position Deficit Likely to Remain High Absent Future Benefit Suspensions

In Figure 3 above, the mean future net position is projected to remain relatively close to

the multiemployer program’s current net position in present value terms. This occurs

because the current net position (i.e., PBGC’s financial statement deficit of $42.4 billion

in fiscal year 2014) already reflects significant financial deterioration in some plans,

including several large plans. The FY2015 projected net new claims are considerably

lower than the FY2014 net new claims because a large portion of the “potential” new

claims are now already included in the current net position.

Figure 4 compares the projected net positions for 2015 through 2024, assuming “best

estimate” future MPRA suspensions and partitions, with the projected net positions

without the MPRA elections. This enables a direct comparison of the effects of the

assumed election of suspensions and partitions on the projected mean and range of

future deficits. To facilitate the comparison, the high/low range shown in Figure 3 is

shown as a band, and the “best estimate” values are shown with the prior format.

Reflecting the election of suspensions and partitions under MPRA, using our best

estimate assumptions, significantly decreases the projected net deficit, as shown in Figure

4. This is in contrast with the effect on near-term solvency shown in Figure 2 above. The

decrease in the projected net deficit reflects that, over the long-term, suspension (and

financial assistance through partition) may allow plans to continue to operate and provide

benefits at levels lower than current levels, but without running out of money and seeing

benefits fall to PBGC guarantee levels. This affects PBGC’s deficit (which looks at

benefits paid over the lifetime of participants) but not shorter-term solvency, indicating

that this is a long-term effect.

Multiemployer Program Net Position

No Future MPRA Suspensions / Partitions Historical

Experience 2005-2014 and 2015-2024 Projections (PV)

$0

-$10

-$20

-$30

-$40

-$50

-$60

-$70

2005 2010 2015 2020 2024

Actual

(historic dollars)

Projected "High/Low" Range Projected Mean

Billions of Dollars

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Given the period required to apply and to determine whether an application for

suspension or partition meets the requirements of MPRA, PBGC does not anticipate that

any suspensions will be in effect as of the release of PBGC’s FY2015 Annual Report.

While it is likely that decisions to proceed to a suspension will be spread over the next

several years, for simplicity, our model of elections assumes that “critical and declining”

plans will make an election that is effective in 2016.15 PBGC will review the assumptions

around election timing as experience under MPRA evolves.

Figure 4 – Future Benefit Suspensions Likely to Reduce Deficit

Sources of Uncertainty: Multiemployer Program

Post-MPRA, there are three major sources of uncertainty in the multiemployer system:

(1) Probability of new claims. These new claims will arise primarily, but not solely, from

plans that are currently in poor financial condition. Uncertainty as to the probability and

timing of future financial assistance reflects both the volatility of plan investment returns

and the timing of potential mass withdrawal from the plan by contributing employers.

This variability in fund earnings, contributions and benefit accruals makes the date of

insolvency and the amount of financial assistance uncertain. (2) Variability in the timing

and amount of financial assistance payments. (3) Extent to which plans will use

15 For modeling purposes, assumptions regarding election of suspension and partition incorporate the likelihood

that sponsors will apply, will comply with statutory requirements, and that the suspensions will not be overturned

by participant vote. For additional information see the discussion on p. 18.

Multiemployer Program Net Position

Effect of Future MPRA Elections

Historical Experience 2005-2014 and 2015-2024 Projections

0

-10

-20

-30

-40

-50

-60

-70

2005 2010 2015

Actual (historic dollars)

2020

No Future Suspensions/Partitions Assume Future Suspensions/Partitions

Projected "High/Low" Projected “High/Low”

Projected Mean Projected Mean

PENSION BENEFIT GUARANTY CORPORATION 13 FY 2014 | PROJECTIONS REPORT
suspensions and partitions under MPRA. These sources of uncertainty are discussed in

detail in the following sections.

Projected Net New Claims

The following tables show the mean present value of net new claims and the mean

present value of the financial position of PBGC’s multiemployer program in 2024

(discounted to 2014 present values), both before and after utilizing MPRA suspensions

and partitions. Alongside those values, the tables display the “low” and “high” values at

the fifteenth and eighty-fifth percentiles. For each of these tables, because higher new

claims mean greater financial losses to PBGC, the order of the columns has been

reversed for the second row of projections to better show the relationship between high

new claims and a deterioration of PBGC’s financial position. In addition to the present

value of the liabilities less assets for FY 2024, which comprise the financial position, the

chart also notes when the fund is insolvent as of that date (see Figure 2 for the range of

solvency outcomes in other years).

No MPRA Suspensions/Partitions

2014 Present Value (PV)

(Dollars in billions at year end)

“Low”

(15th percentile)

Mean “High”

(85th percentile)

PV PBGC ME Net New Claims FY

2015 -2024

$1 $13 $26

“High”

(85th percentile)

“Low”

(15th percentile)

PV FY 2024 PBGC ME Financial

Position

(Deficit)/Surplus

$(27) $(44)16 $(63)

Insolvent

The Net New Claims essentially reflect liabilities recorded when a plan is booked on

PBGC’s financial statements offset by the value removed from the books in a subsequent

year, should a plan’s financial condition materially improve.17 The PV FY2024 Financial

Position measures future obligations as of 2024, including net new claims as well as final

adjustments for benefit payments, asset earnings, and projected 2024 assumptions, and

then discounts to a 2014 present value. The number shown includes as part of the deficit

16 The mean present value discounted to 2014 is a $44 billion deficit. The mean discounted present value is the

average across all simulation paths; discount rates vary among different simulation paths. The mean projected

2024 value is a $61 billion deficit in nominal terms.

17 This is the present value of net PBGC obligations for plans projected to be booked during the next 10 years,

offset by the reversal of liabilities for plans “unbooked” over the 10-year projection period. The liability

“unbooked” is the value in the year of removal; it reflects how the liability has evolved over time along a

particular economic path and is not the same liability at which the plan was initially booked.

PENSION BENEFIT GUARANTY CORPORATION 14 FY 2014 | PROJECTIONS REPORT
any shortage of funds due to providing financial assistance at the currently guaranteed

level even after the multiemployer fund runs out of money.

The median present value of net new claims totaled over the next 10 years (assuming no

use of MPRA suspensions and partitions) is about $13 billion; that is, half of the

simulations show a 10-year total of claims above $13 billion and half below. The mean

present value of claims (that is, the average level of claims) is also about $13 billion over

the next 10 years. In past projections, future claims under the Model reached very high

levels in a greater number of simulations than in the current projections, such that the

projected mean exceeded the projected median. The number of very high claims is

smaller in this year’s projections and the projected mean and median are more closely

aligned. (For a comparison of the distribution of claims see Figure 8 on page 21.)

The middle 70 percent of the outcomes, shown in the table above, for the present value

of the multiemployer program’s projected financial position is a range of $36 billion. The

model finds a 50 percent likelihood that the multiemployer program will experience a

projected improvement over the current deficit of $42.4 billion (expressed in present

value terms).

After assumed election of suspension and partition under MPRA, the projected mean

deficit declines significantly, reflecting the likelihood that these plans will remain solvent

for the long term and not need PBGC financial assistance, resulting in the removal of

liabilities from the books, net of any additional partition assistance provided. Under these

assumptions, the model finds an 80 percent likelihood that the program will experience a

projected improvement in the deficit over the ten year projection period.

Assuming MPRA Election Rates

2014 Present Value (PV)

(Dollars in billions at year end)

“Low”

(15th percentile)

Mean “High”

(85th percentile)

PV PBGC ME Net New Claims FY

2015 -2024

$(12) $3 $21

“High”

(85th percentile)

“Low”

(15th percentile)

PV FY 2024 PBGC ME Financial

Position

(Deficit)/Surplus

$(12) $(28)18 $(47)

Insolvent

The following graphs illustrate the range of projected outcomes for the financial position

of PBGC’s multiemployer program 10 years from now, both before and after the use of

the MPRA suspensions and partitions. For each value of PBGC’s projected net position

18 The mean present value discounted to 2014 is a $28 billion deficit. The mean discounted present value is the

average across all simulation paths; discount rates vary among different simulation paths. The mean projected

2024 value is a $39 billion deficit in nominal terms.

PENSION BENEFIT GUARANTY CORPORATION 15 FY 2014 | PROJECTIONS REPORT
along the horizontal axis, the height of the line shows the frequency of that net position

(out of the 500 simulations).

Vertical lines on the graph show the present value of PBGC’s projected 2024 net position

at the fifteenth and eighty-fifth percentiles and the mean and median values of projected

net positions. The median result is a deficit with a present value of $43 billion in

fiscal year 2024 prior to MPRA use. None of the 500 projections shows a surplus. The

most optimistic projection shows a deficit of $1.7 billion in present value. Many

projections show very severe deficits, with the largest projected at a present value of $102

billion.

Figure 5 – ME Net Position, Absent Future Suspensions and Partitions, Shows Wide Range of Potential

Outcomes,None Positive

As depicted in the following graph, revisiting this distribution under the best estimate

assumption about election of benefit suspension and partition under MPRA (i.e.,

assuming plans choose suspension and partition in the future), produces a significant

shift in the distribution of potential future deficits under the program, with a large range

of potential outcomes. Despite this shift, still none of the 500 projections show a surplus.

PBGC’s Potential 2024 ME Net Position

No Future MPRA Suspensions / Partitions

100

90

80

70

60

50

Median = ($42.6)

40

30

Mean = ($44.3)

85th percentile = ($26.5)

20

10

0

15th percentile = ($62.9)

(140) (130) (120) (110) (100) (90) (80) (70) (60) (50) (40) (30) (20) (10) 0 10

(Deficit)/Surplus in Billions of Dollars - present value

Number of simulations

(out of 500)

PENSION BENEFIT GUARANTY CORPORATION 16 FY 2014 | PROJECTIONS REPORT
Figure 6 – Assumed Future Suspensions Reshape the Risksto the Insurance Program

PV Financial Assistance Payments

In addition to new claims, ME-PIMS simulates financial assistance payments from PBGC

to insolvent multiemployer plans to pay retiree benefits and maintain the plans. PBGC

generally provides financial assistance only after a plan becomes insolvent. Thus, financial

assistance payments projected over the next 10 years are generally due to previous claims

(i.e., plans already booked as losses).

Over the period from 2015 to 2024, after recognizing the doubling of PBGC premiums

from calendar 2015 forward under MPRA, financial assistance payments are projected to

just about match PBGC’s resources, prior to the use of MPRA suspension and partition.

Assets in the multiemployer program in 2014 are about $1.8 billion while the present

value of projected premiums over the 10-year period is about $2.7 billion (post MPRA),

totaling about $4.5 billion. This is about equal to the mean present value of financial

assistance of $4.6 billion in the chart below, which shows the mean, and high and low

values for the present value of projected financial assistance payments. Even within the

high/low range, financial assistance payments vary by a factor of more than three.

No MPRA Suspension/Partitions

2014 Present Value

(Dollars in billions at year end)

“Low”

(15th percentile)

Mean “High”

(85th percentile)

PV PBGC ME Financial Assistance

Payments

FY 2015-2024

$2.3 $4.6 $7.5

If plans use the MPRA suspension and partition options, the pattern of financial

assistance will change. Plans whose partitions are underwritten by PBGC will receive

PBGC’s Potential 2024 ME Net Position

Assuming Future MPRA Suspensions/Partitions

100

90

80

70

60

50

40

30

20

10

0

Median = ($23.4)

85th percentile

= ($12.4)

Mean = ($28.0)

15th percentile = ($46.9)

(140) (130) (120) (110) (100) (90) (80) (70) (60) (50) (40) (30) (20) (10) 0 10

(Deficit)/Surplus in Billions of Dollars - present value

Number of simulations

(out of 500)

PENSION BENEFIT GUARANTY CORPORATION 17 FY 2014 | PROJECTIONS REPORT
financial assistance sooner in anticipation that they will need less total assistance and be

able to survive. Financial assistance payments assuming MPRA election rates are shown in

the following chart and discussed below in the section “Assumed Utilization of MPRA

Suspension and Partition.”

Assuming MPRA Election Rates

2014 Present Value

(Dollars in billions at year end)

“Low”

(15th percentile)

Mean “High”

(85th percentile)

PV PBGC ME Financial Assistance

Payments

FY 2015-2024

$2.9 $4.2 $5.2

Since the projected financial position reflects money still owed even after providing

financial assistance for the next 10 years, it emphasizes the increased demands on

PBGC’s resources beyond the projected 10-year “financial assistance” flows shown

above.

Assumed Utilization of MPRA Suspension and Partition

As discussed above, MPRA gives critical and declining plans additional options to

address the risk of insolvency, but the use of these options presents difficult choices for

plan sponsors and participants. Regulations covering important parts of the process are

not yet final. Thus, there is no experience available to help estimate the number of plans

that will apply to Treasury, be approved to suspend benefits and meet the participant

voting requirements of the law. Similar issues apply in estimating partition by PBGC,

with the added complication that the impairment test will constrain the number of plans

to which PBGC will be able to provide partition assistance and the structure of the

partition payments.

The ME-PIMS Model addresses these issues by a combination of explicit modeling and

assumptions. It explicitly estimates a plan census and benefit distribution for each plan in

the sample and uses that information to determine, at each point along each economic

path, (1) whether the plan is in critical status, (2) if the plan is projected to become

insolvent within the ensuing 20-year period (15 years in some cases) and meets the criteria

to be critical and declining, (3) benefits protected under MPRA, and (4) whether 

the plan would project long term solvency, either through benefit suspensions alone, or

with partition assistance. For critical and declining plans, ME-PIMS then applies

assumptions as to whether Boards of Trustees will undertake and successfully complete

the requirements of benefit suspension.

Our assumptions for these plans reflect two primary factors: whether Boards of Trustees

will voluntarily undertake to apply for a suspension that complies with the requirements

of the law and, to the extent that a plan is not “systemically important,” whether

participants will vote to override the suspension. For “systemically important” plans, the

law requires that Treasury override any “no” vote, after reviewing and potentially

adjusting the proposed suspensions.

PENSION BENEFIT GUARANTY CORPORATION 18 FY 2014 | PROJECTIONS REPORT
Information on the composition of plans that intend to apply, by size and funded status,

is limited and informal. PBGC has gathered information from the plans most likely to

use these options and from multiemployer practitioners and has derived assumptions as

to the potential utilization rates. Estimates were further adjusted to reflect the impact of

estimated voting results, weighted to reflect the provisions of MPRA that affect voting in

systemically important plans. As a result, ME-PIMS assumes (in its “best estimate”

assumptions) that there is a 100 percent likelihood that the largest critical and declining

plan will elect to apply and will complete regulatory requirements. It further assumes a 60

percent likelihood for other plans that can extend solvency by benefit suspension alone

(i.e., that are able to preserve solvency while keeping benefits at levels equal to or higher

than the minimum benefit protections in MPRA).

When a plan would need to reduce benefits below the minimum protections set forth in

MPRA in order to preserve solvency, it has the option of applying to PBGC for financial

assistance in the form of a partition. In a partition, the plan is relieved of the obligation to

pay for a portion of its benefit liabilities by spinning off the guarantee obligations for

some participants to a separate plan which is financed by PBGC. MPRA also requires a

plan to make maximum benefit suspensions in conjunction with a partition. Thus, the

factors that affect suspension generally continue to apply. In addition, Congress required

that PBGC authorize a partition only if it can certify that the provision of financial

assistance to a particular plan will not impair PBGC’s ability to help participants in certain

other plans.

In light of PBGC’s limited financial resources, the impairment test will constrain the

plans to which PBGC will be able to provide partition assistance. As a result, ME-PIMS

assumes that only 20 percent (rather than 60 percent) of plans that require both

suspension and partition to avoid insolvency, and otherwise meet the requirements of the

law will complete the regulatory requirements, receive PBGC approval, and implement

the suspension and partition.

To present the effects of uncertainty as to whether Trustees and participants will elect to

suspend benefits and to successfully apply for partition, this report generally shows

results under two alternate sets of assumptions assuming no future suspensions and

partitions and on the basis of the assumptions described above (“best estimate”

assumptions). It further illustrates uncertainty over time related to each of those

assumption sets, along 500 future economic paths. As an additional test of the sensitivity

of the MPRA election assumptions, PBGC has determined the effects of halving these

assumptions.19 In that case, the estimated effects on solvency would be small – changing

the likelihood of insolvency by less than 5% in any year. The mean present value of the

projected 2024 deficit under the alternative assumptions would be $36.1 billion.

19 In other words, the likelihoods for the one large plan, other suspensions, and additional partitions would be 50

percent, 30 percent, and 10 percent, respectively.

PENSION BENEFIT GUARANTY CORPORATION 19 FY 2014 | PROJECTIONS REPORT
Figure 7 – Sensitivity of Assumptions Regarding Election of Suspension / Partition

Mean PV FY 2024 PBGC ME

Financial Position

2014 Present Value (PV)

(Dollars in billions at year end)

No Future

Suspensions /

Partitions

Alternate

Assumptions

Best Estimate

Assumptions

(Deficit)/Surplus $(44) $(36) $(28)

These assumptions are developed for modeling purposes only; they should not be

interpreted as preempting statutory and regulatory requirements regarding the approval

process for benefit suspensions and partitions. The suspension and partition assumptions

are discussed in greater detail in the Appendices to this report. As noted earlier, the

report shows some results assuming both no use of MPRA suspension and partition and

a “best estimate” utilization assumption.

Variability in Projected Financial Position, Multiemployer Program

About half of projections, absent use of MPRA provisions, show a slight improvement in

PBGC’s financial position over the next 10 years. As of September 30, 2014, the

multiemployer program had a deficit of $42.4 billion. The mean projected result for 2024

(discounted to a 2014 present value) is a $44.3 billion deficit, and the median outcome in

fiscal year 2024 (discounted to a 2014 present value) is a $42.6 billion deficit.

PENSION BENEFIT GUARANTY CORPORATION 20 FY 2014 | PROJECTIONS REPORT
The graph below illustrates the shift in the distribution of outcomes for the program

compared to the prior report.

Figure 8 – ME Changes from Last Year's Projections

If plans are assumed to take advantage of MPRA suspensions and partitions, the graph

changes. As previously noted, the mean present value of the 2024 deficit decreases from

$44 to $28 billion, with more outcomes to the right of the graph. Again, there are no

projected positive net position outcomes in either scenario.

Figure 9 – ME Changes due to Assumed Use of MPRA Suspension/Partition

Changes from Last Year's Projections

No Future MPRA Suspensions/Partitions

100

90

80

70

60

50

40

30

20

10

0

(140) (130) (120) (110) (100) (90) (80) (70) (60) (50) (40) (30) (20) (10) 0 10

(Deficit)/Surplus in Billions of Dollars - present value

FY14 projected 2024 FY13 projected 2023

Changes Due to Assumed Suspension / Partition Elections

100

90

80

70

60

50

40

30

20

10

0

(140) (130) (120) (110) (100) (90) (80) (70) (60) (50) (40) (30) (20) (10) 0 10

(Deficit)/Surplus in Billions of Dollars - present value

With Election (FY14 projected to 2024) Without Election (FY14 projected to 2024)

Number of simulations

(out of 500)

Number of simulations

(out of 500)

PENSION BENEFIT GUARANTY CORPORATION 21 FY 2014 | PROJECTIONS REPORT
MPRA doubled the premium rate to $26, effective in 2015. Even after the increase in

per-participant premiums, the present value of projected multiemployer premiums during

the fiscal years 2015 to 2024 ranges only between $2.5 billion and $2.9 billion. Last year’s

10-year projected premiums were much lower (ranging from $1.1 billion to $1.3 billion).

The increase in this year’s projected premiums is largely the result of the passage of

MPRA. Since the multiemployer program’s premiums are still relatively low and the

program has few assets at the end of the 10 year projection period, the increase in

premium has an insignificant impact on the projected net position.

Reconciling ME-PIMS Results from 2013 to 2014

The following table displays a detailed reconciliation (in dollars, as well as percentages) of

the changes from 2013 to 2014. A discussion of each item follows the table. Decreases in

the projected deficit amounts are shown in parentheses on the chart.

The magnitude of the dollar amounts shown in the table change significantly based on

the order in which they are calculated, but they would still add up to the final value of

$28.0 billion under any order. Because the projected assets are small compared to the

liabilities, the percentages displayed would not change significantly, regardless of the

order of measurement.

Figure 10 – Reconciliation of Changes in ME-PIMS Results

Reconciliation of Changes in ME-PIMS Results, 2013 to 2014 Results

Description of Change

Value of

Change

($ billions)

Net

Deficit

($

billions)

%

Change

Initial Position for Mean PV of 10-Year Projected Net Deficit fr

2013 Projections Report

om $49.6

1. Changes due to new plan data and passage of time from

fiscal year 2013 to fiscal year 2014 5.4 55.0 +10.9%

2. Changes in economy and economic assumptions from

fiscal year 2013 to fiscal year 2014 0.8 55.8 +1.5%

3. Changes to ME-PIMS Model (13.7) 42.1 -24.6%

4. Change in mortality assumption 3.6 45.7 +8.6%

5. MPRA premiums and other changes (No plan election of

suspension or partition) (1.4) 44.3 -3.1%

6. MPRA (Reflecting assumed plan election rates for

suspension and partition) (16.3) 28.0 -36.8%

Year 2024 Mean PV of Projected Net Deficit based on 2014 MEPIMS Model $28.0

Data changes: Changes in the starting data between fiscal year 2013 and fiscal year 2014

include an increase in the number of plans in the sample in ME-PIMS, both to get a

sufficient sample of “critical and declining” plans to better model MPRA actions and to

PENSION BENEFIT GUARANTY CORPORATION 22 FY 2014 | PROJECTIONS REPORT
accommodate the small plan reserve methodology20 of PBGC’s financial statements. The

Model is also updated to incorporate new plan data. Finally, this category incorporates

any changes due to the fact that the 2014 Projections Report extends the projection

period one year, from 2023 to 2024. In combination, these changes increase the present

value of the deficit by $5.4 billion.

Economy and economic assumptions: Between fiscal years 2013 and 2014, there were

modest changes in the assumptions regarding the underlying economy (e.g., source of

imputed asset earnings for the years immediately before the valuation for which actual

data are not yet available), upon which all the ME-PIMS projections are based. ME-PIMS

also reflects changes in the underlying economy. Reflecting these changes increases the

present value of the projected deficit by $0.8 billion.

Changes to the Model: PIMS generally operates on the basis of plan data, using

aggregate information as reported on the Form 5500;21 it imputes individual participant

census information in order to estimate changes in plan liabilities over time. In prior

years, the methods used to impute inactive participant censuses were the same across

both SE-PIMS and ME-PIMS, generating a census varying by age and amount of benefit.

However, as discussed in the 2013 Projections Report, significant differences between

the single-employer and multiemployer programs in factors that affect the guarantee (e.g.,

service), as well as differences in the point at which the guarantee applies, suggested a

focus on the increased sensitivity of modeling plan benefit outflows (cash flows) in MEPIMS. The 2014 version of ME-PIMS incorporates significant improvements to enable

the imputation of a retiree census that explicitly varies by age, service, form of benefit

(modeling life annuities and joint-and-survivor annuities), gender, and benefit amount. It

produces benefit outflow estimates much more closely aligned to those reported by the

actuaries of the plans. The new version of the Model also incorporates the ability to input

plan specific census information where available.

The report reflects other small modifications to the coding (1) to allow the use of

multiple processors, (2) to change the way the program generates random numbers

within a scenario, and (3) to reflect the changes incorporated into PBGC’s accounting

policy last year (the establishment of liability booking procedures by size of plan).

However, the main change to the Model is the change to the benefit cash flow model. In

combination, the changes reduce the present value of the deficit by $13.7 billion.

Change in mortality assumption: The PIMS Model generally assumes certain

relationships between long-term interest rates and the interest factors generated as an

estimate of annuity prices. PBGC sets interest factors that approximate annuity prices

using a specific mortality table. New information about longevity is reflected almost

immediately in annuity prices (i.e., in developing interest factors); this can distort the

relationship between interest factors and other long term rates. Last year’s report

examined this potential by adding a sensitivity test on the interest factors used in pricing.

This year’s report utilizes updated mortality tables, incorporating a projected static

20 See Footnote 33.

21 Information about Form 5500 and its attachments is available at http://www.dol.gov/ebsa/5500main.html.

PENSION BENEFIT GUARANTY CORPORATION 23 FY 2014 | PROJECTIONS REPORT
version of the new tables issued by the Society of Actuaries.22 This change increases

liabilities by $3.6 billion.

MPRA premiums and other changes (No plan election of suspension or partition):

MPRA doubled the level of the per-participant premium effective in 2015. It also 

made a variety of other changes to the law including removal of prior law 

reorganization provisions that required a separate minimum contribution calculation

under certain circumstances. While certain changes (such as reflecting that PPA06 would

not sunset) were already incorporated into prior projections, reflecting the new items

decreases liabilities by $1.4 billion, primarily due to the increase in the premium.23

MPRA (Reflecting assumed plan election rates for suspension and partition):

PBGC developed a “best estimate” set of assumptions for the utilization of MPRA

suspensions and partitions. The development of these assumptions is outlined in the

section entitled “Assumed Utilization of MPRA Suspension and Partition.” ME-PIMS

reflects the likelihood that a plan will attempt to and succeed in suspending benefits

through assumed election rates, which are modeled stochastically. Plans that will need

partition as well as suspension are modeled as a separate class, with election rates limited

by MPRA’s requirement that PBGC’s provision of financial assistance through partition

not impair its ability to assist certain other troubled plans. MPRA also gave PBGC

authority to support plans by providing financial assistance to help troubled plans merge.

This facilitated merger authority is subject to similar impairment constraints and is not

separately modeled in ME-PIMS, but is incorporated within the modeling of the

constrained financial assistance available under partition.

The additional set of assumptions required to support this segment of the Model are

outlined in the Appendices to this report. Reflecting the assumed rates of suspension and

partition decreases the present value of the 2024 multiemployer program net deficit by

$16.3 billion.

In total, reflecting MPRA assumptions and all other Model and data updates since last

year’s report, the present value of the multiemployer program mean projected net deficit

(projected ten years from the report date) decreases from $49.6 billion to $28.0 billion.

Sensitivity of Changes to the Model and Discount Rate

PIMS benefits from comments of readers, other users, and a peer review of the program.

One suggestion made in prior peer reviews was to enhance the disclosure of the

sensitivity of results to changes in assumptions and other aspects of the Model. PBGC

22 Information about the RP-2014 Mortality Tables is available at https://www.soa.org/Research/ExperienceStudy/pension/research-2014-rp.aspx

23 MPRA also made permanent many of the multiemployer changes legislated by PPA06. Since ME-PIMS already

assumed that these changes would be permanent, there are no effects to discuss due to this provision of MPRA.

Further, MPRA stipulated that certain specific amounts of PBGC premiums collected from multiemployer plans

for the years 2016 to 2020 would be placed in non-interest-bearing accounts. ME-PIMS does not currently

reflect this provision. Had it been included in the Model, PBGC would run out of funds approximately one

month sooner, and the present value of premiums would be approximately $50 million less.

PENSION BENEFIT GUARANTY CORPORATION 24 FY 2014 | PROJECTIONS REPORT
has begun to do this, focusing first on the modeled discount rate. Over time, PBGC

plans to expand this analysis to other significant areas of PIMS.

As discussed above, PBGC has added tests of the sensitivity to increases and decreases in

the PIMS discount rate for valuing PBGC obligations. With the “no future MPRA

utilization” assumption, if market prices for annuities were based on discount rates 50

basis points higher than in the base projection, the mean present value of the 2014

multiemployer net position would decrease (improve) by $2.9 billion; discount rates 50

basis points lower would increase (worsen) the mean present value of the deficit by $3.2

billion. Using the “MPRA suspension and partition election” assumptions, discount rates

50 basis points higher than in the base projection would improve the mean present value

of the 2014 multiemployer net position by $2 billion and discount rates 50 basis points

lower would worsen the mean present value of the deficit by $2.3 billion. All four

scenarios show no chance of a surplus in 2024.

PENSION BENEFIT GUARANTY CORPORATION 25 FY 2014 | PROJECTIONS REPORT
SINGLE-EMPLOYER PROGRAM

Single-Employer Program...................................................................................... 26

Single-Employer Program Overview........................................................................ 26

Summary Projections ............................................................................................. 26

Net Position ............................................................................................................................................................26

Sources of Uncertainty: Single-Employer Program..................................................................................................27

Which Plans Will Fail? .............................................................................................................................................27

How Much Will PBGC Owe Participants? ................................................................................................................28

How Much Will PBGC Still Owe in Fiscal 2024? .......................................................................................................30

What Investment Returns Will PBGC Realize?.........................................................................................................30

How Much Premium Income Will PBGC Receive?...................................................................................................32

Variability in Projected Financial Position, Single-Employer Program ....................... 32

Reconciling SE-PIMS Results from 2013 to 2014....................................................... 33

Recent Single-Employer Plan Trends....................................................................... 36

Sensitivity of Changes to the Model’s Discount Rate ................................................. 36

Single-Employer Program Overview

PBGC’s simulations show that significant improvement in the single-employer program’s

projected net position is likely over the 10-year time horizon. This is a similar pattern to

that reported last year, even after adjusting for some refinements to SE-PIMS. Among

the changes made to the modeling system were explicit recognition of hybrid plans,

adjustments to bankruptcy probabilities for certain plan sponsors, modifications to the

variable rate premium projections, reflection of more up-to-date mortality, and

recognition of the effects of HATFA. In 2014, PBGC’s single-employer program covered

over 30 million participants in over 22,000 plans.

Last year PBGC reported a mean present value of $7.6 billion for its projected 2023

deficit. The 2014 Projections Report shows a reasonably comparable deficit of $4.9

billion for 2024, also with a large range of variability in the potential outcomes. However,

none of the simulations project that the program will run out of money within the next 10

years.

Summary Projections 

Net Position

The FY 2014 single-employer program financial statement assets of $88.0 billion and

liabilities of $107.4 billion result in a net deficit of $19.3 billion.24 The following chart

shows PBGC’s actual net financial position from fiscal years 2005 to 2014, and the

present value of the range of projections for the next 10 years. The mean projected net

position for each future year is shown as a large square. The dotted vertical bars for each

future year show the range of results between the fifteenth and eighty-fifth percentiles for

that future year. Since each year’s position affects the following year’s position, the

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

PENSION BENEFIT GUARANTY CORPORATION 26 FY 2014 | PROJECTIONS REPORT
uncertainty of PBGC’s financial position grows every year through fiscal 2024, as

reflected in the progressively longer vertical bars:

Figure 11 – Single-Employer Net Position Will Likely Improve

Because PBGC’s obligations are paid out over the remaining lifetimes of people receiving

pensions, a deficit means PBGC will have less money than it will need over a period of

decades. Without changes, at some point there is a risk that a program in a deficit

position will run out of money (i.e., it will have paid out all its assets and still owe

benefits). That point still appears to be many years in the future for PBGC’s singleemployer program. Out of 5,000 simulations, none project that PBGC’s single-employer

program will run out of money within the next 10 years. A majority of simulations

project decreases in PBGC’s deficit.

The improvements to PBGC’s net position over the 10-year period are due to a general

trend of improving plan solvency and projected PBGC premiums exceeding projected

claims.

Sources of Uncertainty: Single-Employer Program

The uncertainty in the future of PBGC’s single-employer program arises from questions

we cannot now answer. These include not knowing which plans will fail, how much

PBGC will owe participants as a result of these failures, how much PBGC will still owe

people by FY 2024 (in outstanding benefits that remain beyond the 10-year projection

period), what returns PBGC will realize on its assets, and how much PBGC will receive

in premiums.

Which Plans Will Fail?

The primary drivers of PBGC’s projections are the financial health of the companies that

sponsor pension plans and the amount of underfunding in those plans. If many

companies with large, underfunded pension plans enter bankruptcy and are permitted to

terminate their underfunded plans, new claims are created against PBGC, increasing

Single-Employer Program Net Position

Will Likely Improve

Actual Experience 2005-2014 and 2015-2024 Projections (PV)

30

20

10

0

-10

-20

-30

-40

2005 2010 2015 2020 2024

Actual

(historic dollars)

Projected "High/Low" Range Projected Mean

Billions of Dollars

PENSION BENEFIT GUARANTY CORPORATION 27 FY 2014 | PROJECTIONS REPORT
future PBGC obligations. These new claims will also be reflected in PBGC’s projected

net position.

How Much Will PBGC Owe Participants?

Benefit payments and new claims. “Benefit payments” for a given year means the

amount PBGC is projected to pay to retirees during that year (discounted to a 2014

present value), regardless of when their plans failed. “New claims,” on the other hand,

represents the total present value of the projected costs over time to PBGC of plans that

fail during the projection period. A new claim is the difference between the present value

of all the money PBGC will have to pay for a plan that is projected to fail and the assets

of that plan, including any recovery from plan sponsors. Note that the valuation reflects

the benefits payable beyond the 10-year projection period for all failed plans; payments

continue until all participants covered by the plan no longer receive benefits.

The present value of projected net new claims (illustrated in the chart below) represents

the amount of money PBGC owes for participant’s benefits because their plans fail

during the 10-year projection period, less the assets recovered from failed plans and the

companies that sponsor them. In this chart, as in similar charts above, the solid line

represents historical values, while the dotted lines represent the range of outcomes in

future years. The outcomes are between the fifteenth and eighty-fifth percentiles. Since

PBGC trustees the assets of failed plans, new claims bring in both new assets and new

liabilities. Because PBGC would generally not take over a plan that could pay all benefits

due, each plan adds liabilities to PBGC that are larger than the assets that PBGC inherits

from it.

Like investment income projections, the projections displayed for net new claims are for

each year’s results, so there is no cumulative effect in the amount of variability.

PENSION BENEFIT GUARANTY CORPORATION 28 FY 2014 | PROJECTIONS REPORT
Figure 12 – Single-Employer Net New Claims

The table below shows a range of projections for present value of the new claims and

benefit payments for the next 10 years. The table shows the mean and the “high” and

“low” values covering 70 percent of outcomes.25 The projection of benefit payment

amounts are present values of the benefit payments projected to occur over the next 10

years, while the projected new claims amounts are the present values of all new claims

that are booked in the next 10 years.

2014 Present Value (PV)

(Dollars in billions at year end)

“Low”

(15th

percentile)

Mean “High”

(85th

percentile)

PV PBGC SE Benefit Payments

FY 2015-24 $64 $74 $84

PV PBGC SE Net New Claims

FY 2015-24 $8 $25 $43

More uncertainty exists about future new claims than about future benefit payments. Since

benefit payments include continuing payments to people whose plans already have failed,

PBGC already knows how much it expects to pay those people over the next 10 years.

Furthermore, while projected benefit payments in this table are only for the 10-year

25 In the tables, “high” and “low” projections for different measurements — such as “Benefit Payments” or “New

Claims” — simply order all results through that lens. So, amounts within a single column cannot be combined.

Where there are relationships among the values presented, they are noted in the text that accompanies the tables.

Single-Employer Program Net New Claims

Actual Experience 2005-2014 and 2015-2024 Projections

10

9

8

7

6

5

4

3

2

1

0

2005 2010 2015 2020 2024

Actual

(historic dollars)

Projected "High/Low" Range Projected Mean

Billions of Dollars

PENSION BENEFIT GUARANTY CORPORATION 29 FY 2014 | PROJECTIONS REPORT
projection period, projected new claims include obligations for benefit payments far into

the future. Under the Model, the median present value of new claims over the next 10

years is about $21.9 billion. The mean present value of claims is higher, about $25.3

billion over the next 10 years. The mean is higher than the median because there is a

chance under some simulations that claims could reach very high levels.

How Much Will PBGC Still Owe in Fiscal Year 2024?

Interest rates affect the present values associated with PBGC’s benefit obligations. The

single-employer program’s obligations are mainly benefit payments to the retirees who

depend on PBGC. At any given point in time, PBGC uses an interest rate to determine

the market value of those obligations in the future. Changes in this interest rate have a

big effect on the calculations. Variation in the rate accounts for a great deal of the

variation in the value associated with the benefits owed. Within the 70 percent of

outcomes presented, the single-employer program’s present value of projected liabilities

in FY 2024 varies by $84 billion (discounted to a 2014 present value), as shown in the

following chart.

2014 Present Value

(Dollars in billions at year end)

“High”

(85th percentile)

Mean “Low”

(15th percentile)

PV PBGC SE Liabilities in FY 2024 $151 $10926 $67

What Investment Returns Will PBGC Realize?

In contrast to its role with multiemployer plans, PBGC becomes the statutory trustee of

the assets of terminated single-employer plans. Because PBGC assumes the assets of

these plans when they fail, the single-employer program has a significant pool of assets.

The rate of return on these assets is an important source of uncertainty for the singleemployer program.

As shown in the chart below, investment income varies a great deal by year. However,

the amount of variation does not grow cumulatively, because each year’s projection is

only for that year’s investment income, not the accumulated total of all investment gains

and losses. The dotted vertical bars represent the range of outcomes in each year that lie

between the fifteenth and the eighty-fifth percentiles. The vertical bars in the chart

remain similar in size. For FY 2015 (the first year of the projection) that pool of

projected results ranges from an $11.9 billion gain to a $3.0 billion loss, expressed as

present values discounted to 2014.

26 The mean present value discounted to 2014 is $109 billion. The mean projected 2024 value is $151 billion in

nominal terms.

PENSION BENEFIT GUARANTY CORPORATION 30 FY 2014 | PROJECTIONS REPORT
Figure 13 – Single-Employer Program Investment Income

For these projections, PIMS assumed PBGC would invest 70 percent of assets in fixed

income investments such as treasuries and corporate bonds and 30 percent of assets in

equities, consistent with PBGC’s investment policy.

The table below summarizes projections for the total base of assets in the singleemployer program by 2024, as well as for the amount PBGC will earn in investment

income through FY 2024.

2014 Present Value

(Dollars in billions at year end)

“Low”

(15th percentile)

Mean “High”

(85th percentile)

PV PBGC SE Assets in FY 2024 $74 $10427 $135

PV PBGC SE Investment

Income FY 2015-24

$19 $45 $73

Within the results shown in the table (fifteenth percentile to eighty-fifth percentile), there

is a range of $54 billion projected in the investment returns that PBGC will realize and a

$61 billion range in the total amount of PBGC’s projected assets.

New claims also produce increased assets because when plans fail, PBGC inherits their

assets as well as their future responsibilities. Thus a plan termination adds to the money

PBGC has on hand, and adds even more to the amount PBGC owes. In many scenarios

with rising assets, new claims also increase.

Single-Employer Program InvestmentIncome

Actual Experience 2005-2014 and 2015-2024 Projections

12

9

6

3

0

-3

-6

2005 2010 2015 2020 2024

Actual

(historic dollars)

Projected "High/Low" Range Projected Mean

Billions of Dollars

27 The mean present value discounted to 2014 is $104 billion. The mean projected 2024 value is $143 billion in

nominal terms.

PENSION BENEFIT GUARANTY CORPORATION 31 FY 2014 | PROJECTIONS REPORT
How Much Premium Income Will PBGC Receive?

One other factor that helps reduce PBGC’s deficit is premiums. The projected amount of

premiums that PBGC will receive under current law is shown in the table below:

2014 Present Value

(Dollars in billions at year end)

“Low”

(15th percentile)

Mean “High”

(85th percentile)

PV PBGC SE Premiums FY 2015-24 $23 $34 $47

The present value of premiums figures shown above are higher than the corresponding

values last year. The increase can be attributed to higher projections of variable premium

income due to lower projected interest rates (resulting in increases in projected plan

liabilities), increases in underfunding from HATFA changes to funding requirements, and

updates to premium modeling made after observing higher-than-expected premium

receipts in the most recent year.

Variability in Projected Financial Position, Single-Employer Program

SE-PIMS projects PBGC’s potential financial position by combining simulated claims

(including amounts PBGC recovers from failed plans and their sponsors) with simulated

premiums, investment returns, and other factors, recognizing PBGC’s 2014 financial

position as the starting point.

The financial position of the single-employer program as of September 30, 2014, was a

deficit of $19.3 billion. In a majority of simulations, the fiscal year 2014 projections show

an improvement; the median present value of the projected position in 2024 is a $4.1

billion deficit. The mean present value of the projected position in 2024 is a slightly

higher $4.9 billion deficit. The table below shows the mean position, along with the

values at the fifteenth and eighty-fifth percentiles.

2014 Present Value

(Dollars in billions at year end)

“Low”

(15th percentile)

Mean “High”

(85th percentile)

PV FY 2024 PBGC SE Financial

Position

(deficit)/surplus

$(31) $(5)28 $23

Full distribution of results by financial position. The following graph shows the full

range of outcomes that SE-PIMS projects for PBGC’s single-employer financial position

over the next 10 years. For each value of PBGC’s projected net position along the

horizontal axis, the height of the line shows how many scenarios (out of 5,000) have that

28 The mean present value discounted to 2014 is a $5 billion deficit. The mean projected 2024 value is a $7 billion

deficit in nominal terms.

PENSION BENEFIT GUARANTY CORPORATION 32 FY 2014 | PROJECTIONS REPORT
net position as a result. The higher the curve, the more simulations fall at that point in

the distribution. The further to the right any point on the curve is, the better the financial

position associated with that point. The further to the right the graph’s “hump”, the

more scenarios have positive outcomes, and the less spread-out the graph is side-to-side,

the more the simulations agree on outcomes.

Figure 14 – PBGC's Potential 2024 SE Financial Position

Vertical lines on the graph show the present value of PBGC’s projected 2024 net position

at the fifteenth and eighty-fifth percentiles, and the mean and median values of projected

net positions. The median (as mentioned above) is a $4.1 billion deficit in FY 2024, while

the mean is a $4.9 billion deficit.

Reconciling SE-PIMS Results from 2013 to 2014

Comparison of financial position with last year’s results. The graph below compares

the 2013 projections of PBGC’s 2023 financial position with this year’s projections of the

2024 financial position. The hump has not moved much (the changes to the mean and

median between the projections are relatively small), but the curve is flatter in the middle

in 2024. This means that the average results are about the same, but there is somewhat

more variance around these averages, at least in the middle of the distribution. The mean

projected position has improved slightly, by about $2.7 billion, from a deficit of $7.6

billion to a deficit of $4.9 billion. The median projected position has remained about the

same.

PBGC’s Potential 2024 SE Financial Position

800

700 Median = ($4.1)

600

500 Mean = ($4.9)

400

85th percentile = $22.8

15th percentile = ($31.5)

300

200

100

0

($180) ($160) ($140) ($120) ($100) ($80) ($60) ($40) ($20) $0 $20 $40 $60 $80

(Deficit)/Surplus in Billions of Dollars - present value

Number of simulations

(out of 5,000)

PENSION BENEFIT GUARANTY CORPORATION 33 FY 2014 | PROJECTIONS REPORT
Figure 15 – SE Financial Position: Comparison to Prior Year

Potential for exhaustion of PBGC funds. As discussed in the section “Financial

Obligations” beginning on page 4, PBGC’s financial statements in its Annual Report

present liabilities that extend for the lifetime of pension plan participants and their

beneficiaries. These liabilities primarily represent obligations for plans that have already

terminated plus probable future claims. PBGC’s liabilities are then compared with the

assets currently held to determine the net position. In general, the Annual Report does

not look ahead to see how liabilities and assets will change as new claims arise, new

premiums are earned, asset returns are realized, etc.

The scenarios simulated in SE-PIMS, by contrast, start with PBGC’s existing assets and

obligations (liabilities) as of Fiscal Year 2014 and then also project:

• Future premium income assuming the premium rates enacted in the December

2013 Budget Act,

• Future PBGC claims, which increase PBGC’s benefit obligations but also include

assets recovered from terminated plans and from their sponsors, and

• Future investment income or losses on PBGC assets, based on PBGC’s investment

policy and asset allocations.

In the 5,000 scenarios simulated in SE-PIMS, there are none in which PBGC assets are

completely exhausted within the 10-year projection period.

The following table explores the effects of each of the changes on the projected 2024 net

deficit. It is important to note that the order of the changes affects the values. If the

impact of the changes were measured in a different order, it is likely that the values for

each of the changes would be different, although the final deficit number would remain

the same. While the magnitude of changes appears large in relationship to the projected

PBGC’s SE Financial Position Compared to Prior Year

1000

900

800

700

600

500

400

300

200

100

0

Projected 2023 Mean

Projected 2024 Mean

(180) (160) (140) (120) (100) (80) (60) (40) (20) 0 20 40 60 80

(Deficit)/Surplus in Billions of Dollars - present value

Projected 2024 financial position 2013 projection of 2023 financial position

Number of simulations

(out of 5,000)

PENSION BENEFIT GUARANTY CORPORATION 34 FY 2014 | PROJECTIONS REPORT
2024 deficit, this is largely because the projected deficit is coming closer to zero, and thus

relatively small changes in modeled liability appear to have very large effects. These

changes are small, however, in comparison with either projected liabilities or the range of

potential deficits.

Figure 16 – Reconciliation of Changesin SE-PIMS Results

$7.6

$4.9

Economy and Economic Assumptions: Between fiscal year 2013 and fiscal year 2014,

there were changes in the underlying economy, upon which all the SE-PIMS projections

are based. For instance, earnings on pension plan assets in 2013 were higher than

assumed and the Model reflected a new source for imputed earnings for the period

immediately before the valuation for which there are no available data. That change was

offset by lower projected market rates of return in the coming years.29 Reflecting these

changes increased the present value of the projected deficit by $0.2 billion.

Changes to data, Model, other assumption updates, and passage of time: Since

the 2013 Projections Report, PBGC has made a number of changes to the SE-PIMS

Model, as well as updates to the data. Each individual change had a relatively modest

effect, and some of the effects offset one another. The underlying financial situation

improved over the year for plans, sponsors and PBGC. SE-PIMS changed the way it

projects premiums to reflect higher than expected variable premium collections over the

last year. SE-PIMS now explicitly models cash balance plans and reflects refined

modeling of sponsor bankruptcies to better reflect historic default rates. In the aggregate,

these changes decreased the present value of the net deficit by $7.3 billion.

Change in mortality assumption: The PIMS Model generally assumes certain

relationships between long-term interest rates and the interest factors generated as an

29 Across all simulations, PIMS projects a mean arithmetic rate of return on plan assets of 6.1 percent,

corresponding to a mean geometric rate of return of 5.6 percent.

Reconciliation of Changes in SE-PIMS Results, 2013 to 2014 Results

Description of Change Value of Change Net Deficit

($ billions) ($ billions)

Initial Position for Mean PV of 10-Year Projected Net Deficit from

2013 Projections Report

1. Changes in economy and economic assumptions from

fiscal year 2013 to fiscal year 2014 0.2 7.8

2. Changes due to new plan data, modeling updates, other

assumption updates, and passage of time from fiscal year

2013 to fiscal year 2014

(7.3) 0.5

3. Change in mortality assumption 6.5 7.0

4. Effects of HATFA changes to funding requirements (2.1) 4.9

Year 2024 Mean PV of Projected Net Deficit based on 2014 SE-PIMS

Model

PENSION BENEFIT GUARANTY CORPORATION 35 FY 2014 | PROJECTIONS REPORT
estimate of annuity prices. PBGC sets interest factors that approximate annuity prices

using a specific mortality table. New information about longevity is reflected almost

immediately in annuity prices (i.e., in developing the relationship between interest factors

and other long term rates). Last year’s report examined this potential by adding a

sensitivity test on the interest factors used in pricing. This year’s report utilizes updated

mortality tables, using a projected static version of the new tables issued by the Society of

Actuaries. This change increased liabilities by $6.5 billion.

Changes to funding requirements from HATFA: Changes to funding requirements

under HATFA30 resulted in increases to projected claims but also offsetting increases to

projected variable premiums. The present value of these changes decreased the mean

present value of the projected deficit by $2.1 billion.

In total, the present value of the single-employer program mean projected net deficit

decreased from $7.6 billion to $4.9 billion.

Recent Single-Employer Plan Trends

Our projections do not assume that plans are terminated voluntarily by healthy

companies, only by companies in distress. However, some healthy companies do close

their pension plans by purchasing annuities and undertaking a standard termination. In

these cases, PBGC’s current obligations are not affected, but those companies cease

paying premiums altogether. PBGC is analyzing the effect of these actions and will

attempt to incorporate them in future reports.

Similarly, PIMS does not model the potential for plans to discharge any significant part of

their obligations by purchasing annuities through insurance companies and/or paying

lump sums. The use of annuity buyouts and lump sums by companies seeking to transfer

risk for significant portions of their liabilities has recently become a more common

practice; PIMS does not currently model this as a continuing or expanding trend in the

future. In addition to reducing premium receipts, these transactions might affect future

exposure to claims in some circumstances. PBGC intends to investigate this trend in the

future as well.

Sensitivity of Changes to the Model’s Discount Rate

PIMS benefits from comments of readers, other users and a peer review of the program.

One suggestion made in prior peer reviews was to enhance the disclosure of the

sensitivity of results to changes in assumptions and other aspects of the Model. PBGC

has begun to do this, focusing first on the modeled discount rate. Over time, PBGC

plans to expand this analysis to other significant areas of PIMS.

As discussed above, PBGC has added tests of the sensitivity to increase and decrease in

the PIMS discount rate for valuing PBGC obligations. If market prices for annuities were

based on discount rates 50 basis points higher than in the base projection, this would

30 Among other provisions, HATFA extends the period during which the narrowest range around the 25-year

average segment rates applies for funding purposes. For plan years beginning in 2012 through 2017, each

segment rate is adjusted so that it is not less than 90 percent nor more than 110 percent of the corresponding 25-

year average segment rate.

PENSION BENEFIT GUARANTY CORPORATION 36 FY 2014 | PROJECTIONS REPORT
improve the mean present value of the 2014 single-employer net position by $6.4 billion

and improve the likelihood of a surplus in 2024 from 43.4 percent to 54.2 percent.

Discount rates 50 basis points lower would increase the mean present value of the deficit

by $7.3 billion, and reduce the likelihood of a surplus in 2024 to 33.9 percent.

PENSION BENEFIT GUARANTY CORPORATION 37 FY 2014 | PROJECTIONS REPORT
PBGC

STATEMENT OF ACTUARIAL OPINION

W e , th e undersigned , certif y tha t this actuarial evaluati on has bee n prepare d i n accordanc e w i t h

generally accepted actuarial principle s an d practices and, subject to th e disclaimers herei n, to th e

best o f ou r knowledg e, fairl y reflects th e possible distributi on o f project ed outcom e s relati ve to 

th e operation s an d status of th e Corporation 's single - employ er an d multiemploy er pla n insuranc e

progra ms as o f Septemb er 30 , 2014 , after reflecti ng estimat ed effects M P R A o n

multiemploy er plans an d H A T F A on single - employ er plans.

I n prepari ng this evaluatio n, we hav e relie d u p o n informati on provid ed to us regardi ng pla n an d

participa nt data, pla n spons or financi al informatio n, histor ic asset yie ld an d bankrupt cy

informati on an d oth er matters. W e hav e checke d this informati onf o r reasonableness as

appropria te based o n th e purpo se o f th e evaluatio n; th e responsibili ty fo r th e source informati o n

obtain ed f r om For ms 550 0 an d elsewher e rests w i th th e preparers ofthese data.

Subject to th e disclaimers herei n, i n ou r opinio n,

(1) T he technique s an d methodolo gy used are generally acceptable with in th e actuarial

professio n .

(2) T h e assumptio ns used are appropria te fo r th e purpos es o f thi s repor t.

(3) T he resulti ng evaluati on represents a reasonable estima te of th e possible distributi on

o f projecte d outcom e s relati ve t o th e operatio ns an d status o f these program s.

T h e undersign ed are available to discuss th e materi a l i n this repor t.

I , Christoph e r M . Bon e , a m th e Direct o r o f PBGC ' s Polic y , Research , an d Analysis Departme n t

(PRAD ) . I a m a Memb e r o f th e Americ a n Acade m y o f Actuarie s, a Fell o w o f th e Societ y o f

Actuari e s an d a n Enroll e d Actuar y . I m e e t th e Qualificati o n Standards o f th e Americ a n 

Acade m y o f Actuari e s t o rend e r th e actuarial opini o n contain e d i n thi s repor t .

I , Jens e n Cha n , a m th e superviso r y actuary at P B G C w h o direcd y oversees PIM S . I a m a 

Memb e r o f th e Americ a n Acade m y o f Actuarie s, a Fell o w o f th e Societ y o f Actuari e s an d a n

Enroll e d Actuar y . I mee t t h e Qualificati o n Standards o f th e Americ a n Acade m y o f Actuari e s t o

rend e r th e actuaria l opini o n contain e d i n thi s repor t .

Christoph er M . B o ne D a t e

Director, Policy, Research and Analysis Department, PBGC

American Academy ofActuaries

Jens en C h a n D a t e

Actuary, Policy, and Analysis Dept., PBGC

Member, American Academy ofActuaries

PENSION BENEFIT GUARANTY CORPORATION 38 FY 2014 | PROJECTIONS REPORT
APPENDICES

Appendices........................................................................................................... 39

Overview of PIMS................................................................................................... 39

Future Outcomes Are Expressed in Present Value Terms .......................................................................................39

How Projections Compare to Financial Statement Liabilities..................................................................................40

ME-PIMS................................................................................................................ 40

ME-PIMS – Overview...............................................................................................................................................40

ME-PIMS — Data.....................................................................................................................................................42

ME-PIMS — General Methodology .........................................................................................................................42

ME-PIMS — Sampling .............................................................................................................................................43

ME-PIMS — Plan Sponsor Behavior ........................................................................................................................44

ME-PIMS — Imputing the Inactive Census..............................................................................................................45

ME-PIMS — Assumptions........................................................................................................................................45

Possible Future Refinements to the ME-PIMS Model..............................................................................................49

SE-PIMS ................................................................................................................. 49

SE-PIMS — Overview ..............................................................................................................................................49

SE-PIMS — Data ......................................................................................................................................................50

SE-PIMS — Methodology ........................................................................................................................................50

SE-PIMS — Assumptions.........................................................................................................................................51

Sample Statistics from FY 2014 Runs in ME-PIMS and SE-PIMS ................................ 54

Overview of PIMS

The analysis contained in this report utilizes ME-PIMS and SE-PIMS. PIMS Models are

primarily models of pension plans, rather than of plan participants. They use data

reported by a sample of pension plans to model the future funded status of the universe

of private sector multiemployer and single-employer pension plans. Both Models project

long-term financial outcomes by running many simulations, each modeling year-by-year

changes over 20 years into the future. Each simulation starts with known facts about the

economy, the universe of PBGC-insured plans, and PBGC’s financial position. The

program then introduces random year-by-year changes (within certain bounds) to

simulate economic fluctuations, producing 500 scenarios for alternate economic paths

through time. Within a scenario, each plan’s outcomes from one year form the following

year’s starting-point for that plan, and so on. The Models recognize that all singleemployer plan sponsors have some chance of bankruptcy, that all multiemployer plans

have some chance of insolvency, and that these probabilities change over time depending

on a variety of factors.

Neither SE-PIMS nor ME-PIMS is a predictive model. Although ME-PIMS

mathematically models the likelihood of mass withdrawal from a given plan or plan

insolvency prior to mass withdrawal, it does not anticipate withdrawal by individual

employers. It does, however, reflect anticipated employer behavior in limiting

contributions to multiemployer plans. SE-PIMS does not attempt to anticipate

companies’ more general behavioral responses to changed circumstances, such as,

whether or not to continue to sponsor defined benefit plans.

Future Outcomes Are Expressed in Present Value Terms

This report expresses future outcomes in present value terms (i.e., discounted back to the

end of 2014). Each scenario’s outcomes are discounted based on the 30-year Treasury

bond yields projected for that scenario, regardless of whether the underlying simulated

PENSION BENEFIT GUARANTY CORPORATION 39 FY 2014 | PROJECTIONS REPORT
cash flows are generated from holdings of equities, corporate bonds, or U.S. Treasury

bonds.

In the projections of net position, one important factor is the determination of the

amount of money PBGC owes to provide benefits or assistance in today’s present values.

Changes in interest rates have a large effect on this calculation — the higher the interest

rate used to calculate future obligations (liabilities), the lower the present value of the

obligations reported. ME-PIMS and SE-PIMS model uncertainty in future changes to

these interest rates.

How Projections Compare to Financial Statement Liabilities

The long-term projections, presented here, are different from the exposure reported in

PBGC’s financial statements. There, PBGC classifies some plans as “probable for

financial assistance” (multiemployer) or “probable to terminate” (single-employer) and

records them as losses on its financial statements. PBGC describes others as “reasonably

possible” losses and discloses the estimated exposure due to these plans in Section VI of

the PBGC Financial Statements, “Single-Employer and Multiemployer Program

Exposure,” but does not book them as losses. These estimates are based on plans that

PBGC insures and considers reasonably possible to require financial assistance or to

terminate, compared with all the plans that PBGC insures (the universe modeled in MEPIMS and SE-PIMS).

PIMS treats the financial statement liabilities as initial inputs to the Model, estimating

how they may vary in the future and adding in the effects of projected new claims,

benefit payments and asset returns.

ME-PIMS

ME-PIMS – Overview

Each year in the course of preparing its financial statements, PBGC analyzes insured

large (over 35,000 participants) and medium (between 2,500 and 35,000 participants)

multiemployer plans to identify those ongoing plans that might become claims against

the insurance program.31 In determining whether a plan should be classified as a

probable risk of requiring financial assistance in the future and recorded in PBGC’s

financial statements as a balance sheet liability, PBGC evaluates whether the plan can be

expected to become insolvent within the following 10 years, often taking into account

detailed available plan, industry, and employer data. Each plan is determined to either be

“booked” as a liability for the financial statements for a given year or not to be included

in the accrued liabilities at all.

To project future claims against the multiemployer program that are not already booked

in the current financial statements, ME-PIMS models a similar process for each plan in

each future year of each scenario. In each projection year and for the particular economic

scenario being simulated, ME-PIMS projects a plan’s funded status, cash flow, asset base,

31 Generally, all multiemployer plans currently receiving financial assistance from PBGC as well as those that have

terminated are included in PBGC’s financial statements, along with ongoing probable insolvencies. Beginning

with FY2014, the liabilities of the small plans that have not yet terminated are represented in the aggregate in the

financial statements by a small plan bulk reserve.

PENSION BENEFIT GUARANTY CORPORATION 40 FY 2014 | PROJECTIONS REPORT
and growth or decline in the contribution base, to determine whether that plan is

projected to become insolvent within a specified time horizon (generally the next ten

years). In each projection year, the plans that are projected as future insolvencies within

that time horizon become ME-PIMS liabilities that year for the particular scenario. Thus

a plan may be “booked” in ME-PIMS in some years and some scenarios and not in

others.

There is often a long time lag between PBGC’s booking of a multiemployer plan and the

start of PBGC’s financial assistance payments. Payments begin only after the plan has

depleted its assets. In ME-PIMS’ simulation of the multiemployer program, a plan can be

booked as a probable claim in one year of a projection, and then, if economic conditions

are projected to improve sufficiently, it can become un-booked (in the Model) in a later

year. Because PBGC’s accounting procedures for financial statements reflect

considerations not included in the ME-PIMS modeling analysis, and because the financial

condition of plans can vary from year to year, the ME-PIMS projections of PBGC’s net

position may deviate from PBGC’s financial statements in subsequent years.

No single underfunding number or range of numbers is sufficient to evaluate PBGC’s

exposure and expected claims over the next 10 years. Claims are sensitive to changes in

interest rates and investment returns, overall economic conditions, contributions,

changes in benefits, the performance of some particular industries, and bankruptcies. In

the multiemployer program, a large number of claims from the actual and projected

insolvencies of small and medium-sized plans, and a small number of claims from large

plans, have characterized the PBGC’s historical claims experience and are likely to affect

potential future claims experience as well.

ME-PIMS portrays future underfunding, under current law funding rules, as a function

of a variety of economic parameters. The Model anticipates that individual plans have

various probabilities of positive and negative experience, and that these probabilities can

change significantly over time. The Model also recognizes the uncertainty in key

economic parameters (particularly interest rates and market returns). The Model

simulates the flows of claims that could develop under hundreds of combinations of

economic parameters and extrapolations of plans’ respective 10-year historical patterns.

A multiemployer plan can go through a “mass withdrawal,” which happens when all

employers stop participating in a plan at the same time. For each plan in each of the

projection years, ME-PIMS calculates a probability of mass withdrawal based on the

factors listed in the “Assumptions” section. When determining whether a multiemployer

plan undergoes a mass withdrawal in a given year/scenario, a random number is drawn

and compared with the plan’s probability threshold for mass withdrawal — the result

determines whether or not a mass withdrawal is included in that year of the simulation.32

32 For example, assume the mass withdrawal probability for a plan is 5 percent and that the random numbers are

drawn from an urn of balls numbered from 1 to 100. If the ball drawn is numbered 5 or less then the plan

experiences a mass withdrawal. If the random number is greater than 5, the plan does not experience a mass

withdrawal.

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ME-PIMS — Data

ME-PIMS has a detailed database of actual plans (including previously booked plans).

These plans represent more than half of PBGC’s insurance exposure in the

multiemployer defined benefit system, measured from the latest Form 5500 filings

available as of the preceding spring (generally 2012 plan year information). The database

includes:

• summary statistics on plan demographics,

• plan benefit structure,

• asset values,

• liabilities,

• actuarial assumptions, and

• historical contribution levels and demographic trends (over the 10 prior years) to

assist in modeling plan trends.

The ME-PIMS database also contains other pension plan information obtained from

Schedules MB of Form 5500. For booked plans and two large troubled plans PBGC

collected additional data beyond the general information available on the Form 5500 and

used it in the Model. The additional data is subject to confidential treatment requests

under 29 CFR 4901.24.

ME-PIMS — General Methodology

ME-PIMS projects PBGC’s potential financial position by combining simulated claims

with simulated paths for premiums, expenses, PBGC’s investment returns, and changes

in PBGC liability; that is, the present value of benefits and expenses payable pursuant to

claims recognized by the PBGC. The probability of any particular outcome is estimated

by dividing the number of simulations with that outcome by 500, the number of

multiemployersimulations.

Because multiemployer liabilities are booked by PBGC several years before a plan

becomes insolvent, a plan’s financial condition can improve after it is first booked,

reducing PBGC’s liability for that plan (i.e., the value of its claim) by delaying its

projected date of insolvency and/or reducing the flow of assistance anticipated after

insolvency. In some cases, insolvency is delayed beyond the 10-year threshold required

for recognition, causing the plan to become “un-booked” and reducing its claim value to

zero. Conversely, a plan’s condition can deteriorate further following the initial

recognition.

ME-PIMS reflects un-bookings as negative claims, which are taken into account in the

mean and median claim amounts (i.e., the above amounts represent the value of booked

minus un-booked future claims). However, financial improvements during the projection

period that are insufficient to cause claims to be un-booked are not reflected in the unbooked ME-PIMS claims values. As a result, the change in net position over the

projection period may fall short of the amount that would actually be determined when

reflecting the present values of simulated premiums, financial assistance, expenses, and

investment returns over that period.

PENSION BENEFIT GUARANTY CORPORATION 42 FY 2014 | PROJECTIONS REPORT
ME-PIMS’ primarily models the plan’s financial status rather than that of the plan’s

contributing employers.

In the multiemployer program, there is little distinction between claims due to insolvency

and probable liabilities, unlike the single-employer program. In the single-employer

program, a probable liability is generated on PBGC’s books when the condition of the

sponsoring employer justifies such a classification. In the multiemployer program, a

probable liability is generated when certain plan metrics are sufficiently problematic, a

mass withdrawal is triggered, or cash-flow insolvency is projected within 10 years.

ME-PIMS — Sampling

In ME-PIMS, a sample of actual plans (both booked and non-booked) represents the

universe of multiemployer plans. ME-PIMS simulates contributions and underfunding

for the sample plans chosen for the ME-PIMS analysis. It extrapolates or scales the

results generated by this sample of plans to the universe of all multiemployer plans by

multiplying each sampled plan by a weighting factor. To avoid the risk that a particular

sampled plan is anomalous and will materially distort the overall results, PIMS includes

almost all the largest plans in its sample, and decreasing proportions of smaller plans,

where sampling anomalies would have a smaller impact. Thus, the largest plans typically

have the smallest weighting factors.

ME-PIMS starts with PBGC’s multiemployer net position from the financial statements

(a $42.4 billion deficit in the case of fiscal year 2014) for currently insolvent and probable

plans. The starting net position is modeled using a sample of 27 insolvent plans, 29

terminated probable plans, and 44 ongoing probable plans. This is a change from 24, 32,

and 43 plans, respectively, used in FY2013. In addition, ME-PIMS starts with data on the

funded status of 184 non-booked plans (compared to 166 in 2013) that are weighted to

represent the universe of PBGC-covered plans that are not current or probable claims for

PBGC.

The ongoing non-booked PIMS sample is divided into tiers, by plan size (based on

vested current liabilities). In each tier of the sample plans, the individual plans are

weighted by the factor for that tier, where the factor is the total vested liability for all

multiemployer plans in that tier divided by the total vested liability for the sample plans in

that tier. If a plan is projected to present a claim in ME-PIMS, the claim to the

multiemployer program is the claim for that plan multiplied by the factor for that plan’s

tier.

The size of the sample was increased in FY2014 to accommodate 1) the change in

procedures to determine which plans are to be included in the financial statements (i.e.,

which plans are to be booked), as implemented by the Multiemployer Working Group

(MWG) for the fiscal year ended September 30, 2014, and 2) the passage of MPRA,

which makes available suspension and partition options for certain “critical and

declining” plans. To accommodate the new booking procedures, the PIMS sample of

ongoing non-booked plans was divided into three categories: small (under 2,500

participants), medium (between 2,500 and 35,000 participants) and large (over 35,000

participants) plans. To accommodate the modeling of MPRA, each of these groups was

further divided in “MPRA” and “others” yielding a total of six categories.

PENSION BENEFIT GUARANTY CORPORATION 43 FY 2014 | PROJECTIONS REPORT
The list of plans in the MPRA group for each size category is derived by sampling from a

list of plans which are potentially in “critical and declining” status as determined by an

external model. Generally, ME-PIMS attempts to individually model almost all the large

and medium plans the external model determines may be “critical and declining.” Thus

there are 28 sample plans total in the three MPRA groups; the weights are 1.00, 1.03 and

7.75 for the large, medium and small size plans, respectively. There are 11 tiers of plans in

the “others” groups, 2 for the large plans, 5 for the medium plans and 4 for the small

plans. The weights for the tiers range from 1 for the tier of largest plans to 15.54 for the

tier representing the smallest plans.

Under the new booking procedures for the financial statements, ongoing small plans are

no longer included explicitly in the financial statement calculations, but are replaced by a

bulk “small plan reserve.”33 ME-PIMS does not precisely duplicate the bulk reserve

methodology but further divides the “other” small plans into two groups. The first group

consists of the small plans that are assumed to be booked in the first valuation year 

(year 0), as determined by an initial ME-PIMS run. The weight for these plans, 1.584 in

FY2014, is determined by the ratio of the total ME-PIMS PV of assistance to the bulk

reserve. The plans that are not booked in year 0 are weighted according to the process

used for the medium and large tiers.

ME-PIMS — Plan Sponsor Behavior

Changes to funding rules following PPA06 (e.g., the Pension Relief Act of 2010) are

reflected in the modeling. Generally the Model assumes that plans in critical status will

increase contributions and make other plan changes. These assumptions differ for

critical status plans that have “exhausted all reasonable measures” (ERM).

The 2014 version of ME-PIMS includes significant new modeling around “critical and

declining” status plans. Each plan is evaluated separately to determine when it first

becomes “critical and declining” along each of 500 economic paths. The Model then

examines all “critical and declining” plans to see if cutting back the benefits to the

maximum extent (110 percent of the PBGC’s guarantee) is sufficient to maintain plan

solvency over the long term. If so, it applies a random draw to determine whether the

plan will suspend benefits in a given year.34 ME-PIMS solves for the amount of benefit

cutback by determining the smallest feasible cutback using an approximation to the

regulatory solvency test. This approximation requires the plan to be projected to remain

solvent throughout the next 50 years and have at least a 20 percent funded ratio at the end

of the 50-year period, using the actuary’s investment return assumption. The test and 

the random draw for implementing a suspension are determined initially for any

economic scenario where the plan is deemed to be in “critical and declining” status in

2015 or thereafter. If a plan was not deemed to be “critical and declining” in any previous

year along a particular economic path, ME-PIMS continues to test the plan in each

subsequent projection year to determine whether it has become “critical and declining.”

33 The revised methodology is discussed on page 83 of PBGC’s 2014 Annual Report, available at

http://www.pbgc.gov/about/reports/ar2014.html

34 Assumed probabilities of suspension are 100 percent for the largest applicable plan and 60 percent for other

plans.

PENSION BENEFIT GUARANTY CORPORATION 44 FY 2014 | PROJECTIONS REPORT
If suspension to the maximum extent allowable is not sufficient for the plan to become

solvent, ME-PIMS then considers whether a partition on top of the maximum

suspension would assure the plan’s solvency. ME-PIMS assumes all inactive participants

will be eligible to be partitioned to the new (spinoff) plan and tests for (1) whether or not

supporting the partition would reduce the long term cost to the multiemployer insurance

program (at least 10 percent of the present value of projected assistance) and (2) whether

suspension/partition would ensure the plan’s solvency. If these conditions are met, MEPIMS applies a random draw such that 20 percent of such eligible plans will partition in

the first possible year.

The numerical effects of these changes on the mean results are detailed in the section of

this report headed “Reconciling ME-PIMS Results from 2013 to 2014”

ME-PIMS — Imputing the Inactive Census

ME-PIMS generally operates on the basis of plan data, using aggregate information as

reported on the Form 5500; it imputes individual participant census information in order

to estimate changes in plan liabilities due to demographic changes over time. The active

participant census is readily developed from the active age/service scatter attachment to

the plan’s Form 5500. The inactive census is more problematic. Because the

development of ME-PIMS used SE-PIMS as a starting point, in prior years it focused on

plan liabilities, imputing an inactive distribution by age, service, and amount of benefit,

derived from an extended projection of the current active census.

The multiemployer program works differently from the single-employer program with

insolvency as the PBGC-triggering event. Furthermore, the structure of the

multiemployer guarantee differs from that in the single-employer program; the

multiemployer guarantee applies to the monthly accrual rate per year of service, rather

than the total accrued benefit. Thus, the current version of ME-PIMS incorporates

significant improvements to enable the imputation of a retiree census that explicitly varies

by age, service, form of benefit (modeling life annuities and joint and survivor annuities),

gender, and benefit amount. It produces benefit outflow estimates much more closely

aligned to those reported by the actuaries of the plans.

The imputed inactive census is based on actual inactive data received from several plans.

The actual inactive data provide a master template for the assumed distributions by age,

service, gender and form of payment for each plan’s inactive census (at least initially).

ME-PIMS then applies the individual plan’s current accrual rate (with adjustment for

inflation) to this initial inactive census, which is then further calibrated to the Form 5500

in-pay benefits and the starting current liabilities of the plan.

The new version of the Model also incorporates the ability to input plan specific census

information where available.

ME-PIMS — Assumptions

The following variables are stochastically projected:

• Interest rates, stock returns, and related variables (e.g., inflation, wage growth, and multiplier

increases in flat-dollar plans). These variables are determined by the underlying means, standard

deviations, and correlation matrix established for the ME-PIMS projection.

PENSION BENEFIT GUARANTY CORPORATION 45 FY 2014 | PROJECTIONS REPORT
- Stock returns are modeled as independent from one period to the next. To determine a

simulated sequence of stock returns, the Model randomly draws returns from a

distribution that reflects historical experience going back to 1926.

- Interest rates are modeled as correlated over time. With the Model, the Treasury yield

for a given period is expected to be equal to the yield for the prior period, plus or minus

some random amount.

- The random draws affecting the bond yields and stock returns are correlated according

to an estimate derived from the period 1973 to 2007. Stock returns are more likely to be

high when the Treasury yield is falling and vice versa. Credit spreads on investmentgrade corporate bonds are modeled to regress toward their historic mean values.

• Asset returns. Plan asset returns are based on an internal study of historic asset returns among

large plans. Using the financial rates directly modeled in PIMS (stock market returns, long-term

Treasury bond returns and yields), the study estimated mixtures of those rates to best fit the

historic returns of plans in the study. PIMS projects annual plan returns using the following

weighting based on the average of the estimated rate mixtures: 48 percent stock market returns, 23

percent long-term Treasury bond returns, and 30 percent long-term Treasury bond yield, with a

-2.5 basis points additive return adjustment (percentages are rounded). Future plans for PIMS may

include modeling of additional asset class returns allowing PIMS to use the investment allocation

information trustees now report as part of the annual Form 5500 filings.

• Plan demographics. Starting with the plan’s active employee population data from the Form

5500 (grouped by age and service bands), the distribution of active participants for each plan in 

the future varies according to that plan’s actuarial assumptions regarding retirement, disability, and

termination of employment. Age and service also vary over time due to hiring assumptions that

are determined separately in each scenario of the projection. Hiring patterns vary with stochastic

projections; the general assumption is that a plan’s historical hiring distribution continues and

hiring occurs (or not) to bring the size of the active population up to the size indicated by the

continued trend as needed after plan decrements (retirement, termination of employment,

disability) take place. ME-PIMS does not currently assume industry-specific employment trends.

ME-PIMS models net annual changes in employment levels reflecting the path of economic

variables in a particular scenario over time, resulting in a mean net decrease in the active

multiemployer population of 1.3 percent per year across all scenarios.

• Benefit-level and employer-contribution increases. These vary annually during the projection

period with some correlation to modeled economic conditions in each future year.

• Probability of mass withdrawal. This probability is generated using each plan’s:

- plan size,

- ratio of active to inactive population,

- ratio of assets to benefit payments and expenses,

- ratio of the accumulated credit balance in the funding standard account to employer

contributions,

- ratio of market value of assets to vested actuarial liabilities, and

- ratio of current year to previous year contribution amount.

The following assumptions are also used in ME-PIMS projections:

• Mortality. For purposes of determining plans’ mortality experience during each year of the

projection period: the RP2000 Combined Healthy mortality tables, projected with Scale AA to the

specified projection year on a static basis. For purposes of determining the present value of PBGC

assistance: the RP2014 Combined Healthy male and female mortality tables with a static projection

of 13 years beyond the applicable valuation year using the MP2014 scale.

PENSION BENEFIT GUARANTY CORPORATION 46 FY 2014 | PROJECTIONS REPORT
• Contribution Level/Credit Balances. The credit balance is increased each year by the valuation

interest rate and decreased by the amount by which modeled contributions are below the

minimum required. ME-PIMS modeling of employer contributions reflects that most employers

make contributions at a level above the minimum required.

• Benefit Improvements. For flat-dollar plans that are not in critical or endangered35 status, benefit

multipliers are assumed to increase annually by the rate of increase in average wages. The majority

of multiemployer plans have flat-dollar formulas, though there is a trend towards formulas 

that are based on a percentage of total contributions attributable to each participant, 

especially for plans in critical or endangered status. ME-PIMS models both flat-dollar and percentof-contributions benefit formulas. In plans where the benefit formula is not a flat-dollar or

percent-of-contributions schedule, a translation to such a formula is made and the plan is modeled

as a flat-dollar plan.

• Benefit Improvement Restriction. ME-PIMS assumes that critical status plans and most

endangered status plans will not adopt future benefit improvements.

• PBGC Premiums. ME-PIMS models premiums based on the rate under current law (reflecting

doubling in 2015 under MPRA) with projected rates increasing under the indexing provisions in

current law. There is no allowance in premium projections for write-offs of uncollectable

premiums and for the fact that a portion of the premium collected is not credited with interest

under MPRA.

• PBGC’s Assets. All assets in the multiemployer program are, by law, placed in revolving funds.

PBGC’s policy is to invest revolving fund assets in United States Treasury securities. Asset returns

in ME-PIMS are bound by the modeling of Treasury returns in future years.

• Discounting Future Claims. When ME-PIMS discounts future claims, the discount factor is a

single interest factor which models the “select” and “ultimate” factors described in the 2014

financial statements with an assumed reversion to the relationship of market interest rate and

annuity pricing factors observed prior to the 2008 financial crisis. Those factors are based on a

survey of private-sector annuity market prices.

• Determining Discounted Future Present Values Shown in Report Tables. For calculations

involving discounting future amounts, the discount rate used is the simulated 30-year Treasury

rate generated for the particular year and economic scenario.

• Behavior of Critical Status Plan Sponsors. The per-capita contribution in critical status plans

increases at a multiple of the prior observed rate, but the annual rate of increase in per-capita

contribution is limited to 12 percent per year (7 percent for those critical plans assumed to declare

ERM). The plan aggregate contribution amount (indexed for wage inflation) is capped by a

multiple of the 2008 contribution. The cap assumes that aggregate contributions in non-ERM

plans will not more than double in the first six years, not more than triple in the next six years or

exceed 3.5 times the base year amount thereafter. The limit is 1.5 times the pre-PPA06 base year

contribution in ERM plans. A floor is set such that the aggregate dollar limit never falls below the

prior year’s contribution. These increases in contributions are treated as “supplemental” and do

not affect the benefit accrual rate in plans where the benefit is based on a percentage of employer

contributions. Non-ERM critical status plans are assumed to eliminate early retirement subsidies

and temporary supplements for active participants.

• Assumptions to Facilitate Suspension and Partition. This 2014 Projections Report reflects

additional assumptions to model the effects of MPRA:

35 A plan is generally considered to be in “endangered status” if it is not in “critical status” and it (1) is less than 80

percent funded or (2) has an accumulated funding deficiency in the current plan year or is projected to have an

accumulated funding deficiency in any of the six subsequent plan years. A plan is in “seriously endangered status”

if the plan is not in “critical status and both (1) and (2) apply. (Internal Revenue Code §432(b)(1))

PENSION BENEFIT GUARANTY CORPORATION 47 FY 2014 | PROJECTIONS REPORT
- Suspension only: For plans that can suspend benefits and remain solvent without requiring

partition assistance, ME-PIMS assumes that one large plan has a 100 percent likelihood of

suspending benefits and that the other suspension-only eligible plans will do so 60 percent of

the time.

- Partition: For plans which require partition in addition to suspension in order to maintain

solvency, ME-PIMS tests to ensure that the partition will reduce PBGC’s long run loss by at

least 10 percent. For plans that meet that requirement it assumes that there is a 20 percent

likelihood that a plan that could be successfully partitioned under the standard would actually be

approved for partition.

• Plan Demographics to Facilitate Cash Flow Modeling. To determine the cash flows in

multiemployer plans, ME-PIMS utilizes a number of assumptions:

- Proportion of active population assumed to be male: 70%,

- Proportion of retirees (in ongoing plans) assumed to be male: 80%,

- Proportion of terminated vested participants (in ongoing plans) assumed to be male: 94%,

- Age difference: females three years younger than their male spouses,

- Proportion of active population assumed to elect joint and survivor form: 60%,

- Proportion of retirees assumed to possess a joint and survivor form: 30%,

- Proportion of terminated vested assumed to elect joint and survivor form: 35%,

- Joint & survivor form: joint and 50% survivor benefit,

- Proportion of participants assumed married for pre-retirement death benefit: 80%, and

- Conversion factors based on PBGC rates for the joint and 50% survivor benefit: .8730 for male

participants; .9135 for female participants.

The 2014 version of ME-PIMS recognizes the following changes in assumptions36 from

the assumptions used in the 2013 version of the Model:

• Mortality Table used to determine the present value of PBGC assistance: the RP2014

Combined Healthy male and female mortality tables, with a static projection of 13 years beyond

the applicable valuation year using the MP 2014 scale, replaces the RP2000 Combined Healthy

male mortality table projected with scale AA to the year of valuation plus 10 years and set back

one year. Up-to-date mortality tables enable the consistent projection of interest factors and

long-term interest rates in the economy in PIMS.

• Mortality Table used to determine the plans’ mortality experience during each year of the

projection period: the RP2000 Combined Healthy male and female mortality tables, projected

with Scale AA to the specified projection year on a static basis, replace similar male-only tables to

enable ME-PIMS to better model cash flows.

• Source of Imputed Earnings Immediately Prior to Valuation Date: Wilshire’s TUCS survey

of multiemployer plan returns replaces the Ryan Labs pension plan asset/liability survey. This

change improves projections by focusing strictly on returns in multiemployer pension plans.

• Assumptions used to Facilitate Suspension and Partition: the assumptions shown above are

added and used for the first time in 2014 to support the modeling of suspensions and partitions.

The basis for the choice is explained in the section “Assumed Utilization of MPRA Suspension

and Partition.”

36 This list excludes changes that arise merely from changes in economic conditions or from annual updates, for

example changes in interest rates and asset returns, one additional year of mortality improvement.

PENSION BENEFIT GUARANTY CORPORATION 48 FY 2014 | PROJECTIONS REPORT
• Plan Demographic Assumptions used in Cash Flow Modeling: the assumptions shown

above are added and used for the first time in 2014 to support the cash flow modeling. PBGC

chose these assumptions because they are representative of the data available to PBGC from

multiemployer plans.

Possible Future Refinements to the ME-PIMS Model

PBGC expects to continue to modify and improve ME-PIMS in the future. Areas under

study include incorporating additional modeling of plans’ actual responses to PPA06,

especially in the areas of projected mass withdrawals and employer benefit and funding

decisions, and to MPRA in the area of suspension of benefits and partition.

A plan becomes insolvent when it does not have enough assets to pay benefits as they

become due. A single-employer plan has one sponsor for which financial information is

often available and whose financial condition can be assessed and modeled. By contrast,

among multiemployer plans, even the identity of some individual employers that

participate in particular multiemployer plans has only recently become available. Others

remain unknown. At present, ME-PIMS does not model the financial conditions of

individual employers (or industries) in multiemployer plans. PBGC will analyze the newly

available information on individual employers that provide more than five percent of a

plan’s contributions, and consider whether to incorporate this information into the

Model.

PIMS currently models future mortality improvement using age-varying static mortality

projections. Future improvements to the system may incorporate generational mortality

tables that include variation by age and cohort.

SE-PIMS

SE-PIMS — Overview

No single underfunding number or range of numbers is sufficient to evaluate PBGC’s

exposure and expected claims over the next 10 years. Claims are sensitive to changes in

interest rates and investment returns, overall economic conditions, contributions,

changes in benefits, the performance of some particular industries, and bankruptcies.

Large claims from a small number of terminations characterize the Corporation’s claims

experience throughout its history and are likely to affect PBGC’s potential future claims

experience as well.

SE-PIMS starts with data on PBGC’s single-employer position and data on the funded

status of more than 400 plans that are weighted to represent the universe of PBGCcovered plans. The Model produces results under 5,000 different simulations (500

economic scenarios times 10 bankruptcy simulations). The probability of any particular

outcome is estimated by dividing the number of simulations with that outcome by 5,000.

The Model uses funding rules as prescribed by current law.

PBGC’s expected claims under the single-employer program depend on two factors: the

amount of underfunding in the pension plans that PBGC insures (i.e., exposure) and the

likelihood that corporate sponsors of these underfunded plans will encounter financial

distress that results in bankruptcy and plan termination (i.e., the probability of claims).

PENSION BENEFIT GUARANTY CORPORATION 49 FY 2014 | PROJECTIONS REPORT
SE-PIMS — Data

SE-PIMS has a detailed database of more than 400 actual plans, sponsored by more than

300 firms, which represent about half of PBGC’s insurance exposure in the singleemployer defined benefit system measured from the 2012 Form 5500 filings (the most

recent year of complete Form 5500 filing data available). The plans selected for the

sample are those with sponsors that have the largest shares of total plan liabilities in the

single-employer defined benefit system and where (1) sufficient publicly accessible data is

available on the sponsor to use the SE-PIMS bankruptcy probability model, and (2) plan

details can be sufficiently captured in the SE-PIMS Model. The addition of the ability to

model cash balance plan structures significantly relaxed the second constraint in this

year’s Model.

The database includes:

• summary statistics on plan demographics,

• plan benefit structure,

• asset values,

• liabilities,

• actuarial assumptions, and

• key financial information about the employer sponsoring the plan

The SE-PIMS database contains pension plan information from Schedules SB of the

Form 5500 generally from the 2012 plan year. SE-PIMS also reflects any available

contributions from later years’ filings that are available when the initial results are

generated.

SE-PIMS — Methodology

The SE-PIMS sample of more than 300 large plan sponsors is weighted to represent the

universe of PBGC-insured, single-employer plans. The weighted representation reflects

the values of total liabilities and underfunding, and the distribution of funding levels

among plans in the insured universe that were available publicly as of the preceding

spring (generally 2012 plan year information).

The weights in SE-PIMS scale the sample of plans to be representative of the entire

universe of single-employer plans (generally trying to capture the distribution of plans by

size). This is done by creating scaled copies (referred to as “partners”) of the sponsors in

the SE-PIMS sample. Each partner is projected to sponsor scaled copies of the same

plans sponsored by its source sponsor. Partners begin each scenario with the financial

conditions copied from their source sponsors but are scaled in the sizes of their balance

sheet entries and employment and receive individual projections of their financial

conditions and bankruptcy experiences. Because the SE-PIMS sample is drawn from

larger than average plans and corporations, each partner is scaled (in plan size and

sponsor size) to one-fifth the size of its source.

Partners are allocated to sponsors in SE-PIMS to create a weighted sample that

approximates the distribution of plan liabilities by funding status in the insured universe.

PENSION BENEFIT GUARANTY CORPORATION 50 FY 2014 | PROJECTIONS REPORT
For example, the weighted sample’s total value of plan liabilities among plans between 50

to 60 percent funded is compared to the same total for the insured universe, and similarly

for plans 60 to 70 percent funded, 70 to 80 percent funded, etc. Partners are allocated for

a best fit to the entire distribution.

SE-PIMS simulates contributions, premiums, and underfunding for these plans using the

minimum funding and premium rules as required by the PPA06 and subsequent

legislation, and then extrapolates the results to the universe of single-employer plans.

Funding rules and PBGC premiums under current law are reflected in the modeling.

SE-PIMS also uses the employer’s financial information as the starting point for

assigning probabilities of bankruptcy, from which it projects losses to the insurance

program.

Projections of claims against the insurance program are made stochastically. Claims

against the pension insurance program are modeled by simulating the occurrence of

bankruptcy for plan sponsors. The Model reflects the relationship that occurred from

1980 to 1998 between the probability of bankruptcy and the firms’ contemporaneous

financial health variables (equity-to-debt ratio, cash flow, firm equity, and employment),

modified as described below. For each period, the Model assigns a random change in

each of these variables to each firm, correlated with changes in the economy. The

simulated financial health variables determine the probability of bankruptcy for that year.

The Model assumes, with the exception noted below regarding variable-rate premiums,

that all plan sponsors contribute the minimum amount each year. The Model runs 500

economic scenarios (varying interest rates and equity returns) with each plan’s sponsor

being “cycled” through each economic scenario 10 times (with varying financial health

experiences, bankruptcy probabilities, etc.) for a total of 5,000 different simulations.

SE-PIMS then extrapolates the results of these simulations to the universe of insured

single-employer plans.

Beginning in 2014, SE-PIMS explicitly models cash balance plans to determine their

values in the Model. This is a change from the prior year to better model the liabilities

developing under cash balance plans.

SE-PIMS — Assumptions

The following variables are stochastically projected:

• Interest rates, stock returns, and related variables (e.g., inflation, wage growth, and multiplier

increases in flat-dollar plans).37 These variables are determined by the underlying means, standard

deviations, and correlation matrix established in SE-PIMS.

- Stock returns are modeled as independent from one period to the next. To determine a

simulated sequence of stock returns, the model randomly draws returns from a

distribution that reflects historical experience going back to 1926.

37 In a flat-dollar plan, the pension benefit is determined by multiplying a fixed amount by the participant's years of

service. In a salary-related plan, the benefit is determined by multiplying a percentage of the participant's salary by

the years of service.

PENSION BENEFIT GUARANTY CORPORATION 51 FY 2014 | PROJECTIONS REPORT
- Interest rates are modeled as correlated over time. With the Model, the Treasury yield

for a given period is expected to be equal to the yield for the prior period, plus or minus

some random amount.

- The random draws affecting the bond yields and stock returns are correlated according

to an estimate derived from the period 1973-2007. Stock returns are more likely to be

high when the Treasury yield is falling and vice versa. Credit spreads on investmentgrade corporate bonds are modeled to regress toward their historic mean values.

• Sponsor financial health variables (equity-to-debt ratio, cash flow, firm equity, and

employment).

• Asset returns. Plan asset returns are based on an internal study of historic asset returns among

large plans. Using the financial rates directly modeled in PIMS (stock market returns, long-term

Treasury bond returns and yields) the study estimated mixtures of those rates to best fit the

historic returns of plans in the study. PIMS projects annual plan returns using the following

weighting based on the average of the estimated rate mixtures: 48 percent stock market returns, 23

percent long-term Treasury bond returns, and 30 percent long-term Treasury bond yield, with a

-2.5 basis points additive return adjustment (percentages are rounded). Future plans for PIMS may

include modeling of additional asset class returns allowing PIMS to use the investment allocation

information sponsors now report as part of the annual Form 5500 filings.

• Plan demographics. Starting with plans’ population data from the Form 5500, the distribution of

active participants for a plan varies throughout the forecast, according to that plan’s actuarial

assumptions regarding retirement, disability, and termination of employment. Age and service

also vary over time due to hiring patterns that are determined separately in each scenario of the

projection. Unless the plan is frozen, PIMS assumes a stationary mean active participation level

for the plan. The distribution of ages and benefits for retired and terminated vested participants

are imputed from a long term projection of the starting active population and normalized to the

actual counts furnished by the Schedules SB. All participants are assumed to be male and are

assumed to elect straight life annuities.

• Probability of bankruptcy. Sponsors are subjected to an annual stochastic chance of bankruptcy.

That probability of bankruptcy is determined by formulas estimated from historical bankruptcies

and various measures of companies’ financial health over the period 1980 to 1998. Bankruptcy

probability formulas generally do not vary by industry.38 A plan presents a loss to participants

and/or the pension insurance program if its sponsor is simulated to experience bankruptcy and the

plan is less than 80 percent funded for termination liability. For the 2014 Model, PBGC made two

changes to improve its estimates of bankruptcy risk.

- Reflected a new internal data source to better identify who was the plan’s sponsor.

- Compared market indices of bankruptcy risk to those generated by PIMS and

recalibrated the outliers in PIMS to equal the mean of the market estimate of bankruptcy

risk for that class of bonds.

PBGC plans to update its bankruptcy model to look beyond book values of the firms to their

market values in determining bankruptcy risk.

The following assumptions are also used in SE-PIMS projections:

• Mortality. For purposes of determining plans’ mortality experience during each year of the

projection period: the RP2000 Combined Healthy male mortality table, projected with Scale AA to

the specified projection year on a static basis. For purposes of determining the amount of

38 SE-PIMS makes an exception for the financial and utilities industries, where relatively high degrees of leverage are

considered not to signal a risk of bankruptcy. SE-PIMS also increases the bankruptcy probabilities of a few large

companies, especially in the retail industry, whose Model probabilities greatly underestimate the risk of bankruptcy

as measured by their bond ratings.

PENSION BENEFIT GUARANTY CORPORATION 52 FY 2014 | PROJECTIONS REPORT
underfunding at termination, the RP2014 Combined Healthy male mortality tables with a static

projection of 13 years beyond the applicable valuation year using the MP2014 scale.

• Contribution Level/Credit Balances. The credit balance is increased each year by the plan’s

rate of return on assets and decreased by the amount assumed to be used to satisfy the minimum

funding requirement. For purposes of modeling future claims, SE-PIMS, assumes that employers

will contribute the minimum required amount each year as determined using the further

smoothing authority under HATFA (new in 2014) and that any credit balance remaining will be

used to the maximum extent permitted until the balance is completely depleted.

• Benefit Improvements/Benefit Improvement Restriction. For flat-dollar plans, benefit

multipliers are assumed to increase annually by the rate of inflation and productivity growth. For

salary-related plans, the benefit formula is assumed to remain constant, but annual salary increases

are reflected based on the rate of inflation, productivity growth, and a factor measuring merit

and/or seniority. Because SE-PIMS does not model benefit increases that exceed the average

wage increase of affected employees, benefit improvement restrictions are not applicable in PIMS.

• Cash Balance Plans: ME-PIMS assumes that plans will pay the full accrued benefit (the account

balance) as a lump sum to all retiring and terminating active participants in any plan that is at least

80 percent funded.

• Plan Accrual Benefit Restrictions. Plans with funded percentages below 60 percent must cease

benefit accruals. SE-PIMS reflects this rule, and assumes that once a plan is frozen, it will remain

frozen, even if the percentage increases above 60 percent at some future time.

• Declassification of Credit Balances. When determining funding percentages for triggering

benefit restrictions, SE-PIMS reduces assets by credit balances. Sponsors have the option of

declassifying credit balances at any time to raise the funded percentage to the level needed to 

avoid a benefit restriction. For modeling purposes, SE-PIMS assumes that sponsors will choose to

declassify credit balances to the extent necessary to avoid the benefit freeze restriction (60 percent

threshold), but assumes that traditional plan sponsors will not declassify balances to attain the 80

percent threshold. Because cash balance plans are assumed to pay the full accrued benefit as a

lump sum to departing participants, contingent on sufficient funding, these plans are assumed to

declassify credit balances to achieve 80 percent funding.

• PBGC Premiums. SE-PIMS models premiums based on the rate under current law with

projected rates increasing under the fixed increases and indexing provisions in current law. There

is no allowance in premium projections for write-offs of uncollectable premiums.

• Variable-Rate Premiums. PBGC’s experience has been that many companies make plan

contributions in excess of the minimum, in part to avoid or reduce their variable-rate premium

payments. Virtually all of these companies have been at a low risk of bankruptcy, and their plans

have not accounted for a material portion of PBGC’s claims. By contrast, the relatively small

number of plans that result in claims are sponsored by companies that have not made

contributions above the required minimum for an extended period prior to the claim. Using the

general PIMS projection that companies will make the minimum required contributions would

overstate the estimate of PBGC’s variable rate premium income. Accordingly, for variable-rate

premium projections only, the SE-PIMS Model reflects an adjustment to plan assets phased in

over five years to offset the assumption that plans generally contribute at the minimum. Variable

rate premiums are further scaled to match recent experience. This report reflects an additional one

year delay in both the asset increase and the variable rate premium scaling in order to better match

PBGC’s actual experience in variable-rate premium collection as premium rates rise.

• PBGC’s Assets. Projected returns are based on analysis of historical returns, return volatilities,

and correlations between the different asset class returns.

• Discounting Future Claims. When SE-PIMS discounts future amounts, the discount factor is a

single interest factor which models the “select” and “ultimate” factors described in the 2014

financial statements with an assumed reversion to the relationship of market interest rate and

PENSION BENEFIT GUARANTY CORPORATION 53 FY 2014 | PROJECTIONS REPORT
annuity pricing factors observed prior to the 2008 financial crisis. Those factors are based on a

survey of private-sector annuity market prices.

• Determining Discounted Future Present Values Shown in Report Tables. For calculations

involving discounting future amounts, the discount rate used is the simulated 30-year Treasury

rate generated for the particular year and economic scenario.

(For additional information on SE-PIMS and the assumptions used in running the

Model, see PBGC’s Pension Insurance Data Book 1998, pages 10-17, which also can be

viewed on PBGC’s website at

www.pbgc.gov/publications/databook/databk98.pdf.)

The 2014 version of SE-PIMS recognizes the following changes in assumptions from

those used in the 2013 version of the Model.39

• Mortality Table for determining the amount of underfunding at termination: the RP2014

Combined Healthy male mortality tables with a static projection of 13 years beyond the

applicable valuation year using the MP 2014 scale replaces the RP2000 Combined Healthy male

mortality table projected with scale AA to the year of valuation plus 10 years and set back one

year. Up-to-date mortality tables enable the consistent projection of interest factors and longterm interest rates in the economy in PIMS.

• Source of Imputed Earnings Immediately Prior to Valuation Date: Wilshire’s TUCS survey

of single-employer plan returns replaces the Ryan Labs pension plan asset/liability model. This

change improves projections by focusing strictly on returns in single-employer pension plans.

• Modeling of Employer Bankruptcies: The 2014 Model reflects a new internal data source to

better identify the plan’s sponsor and recalibrates outliers in the SE-PIMS bankruptcy model to

equal the mean of the market estimate of bankruptcy risk for plan sponsors with similar bond

ratings, by comparing market indices of bankruptcy risk to those generated by the SE-PIMS

Model. This change improves our projection of bankruptcy rates for certain large employers.

• Adjustment to Variable Rate Premiums: The 2014 Model reflects an additional one year delay

in both the asset increase and the variable rate premium scaling in order to better match PBGC’s

actual experience in variable-rate premium collection as premium rates rise.

• Cash Balance Plans/Declassification of Credit Balances: The 2014 Model assumes that plans

will pay the full accrued benefit (the account balance) as a lump sum to all retiring and terminating

active participants in any cash balance plan that is at least 80 percent funded. It also assumes that

cash balance plans will declassify credit balances where possible to achieve the 80 percent

threshold to allow them to pay the lump sums. In prior years, the Model assumed that no plans

would declassify credit balances to achieve 80 percent funding. These additions/changes enable

SE-PIMS to realistically model cash balance plans.

Sample Statistics from FY 2014 Runs in ME-PIMS and SE-PIMS

The following tables show selected output statistics from runs of ME-PIMS and SEPIMS for this 2014 Projections Report. These statistics are specific to the Model runs for

this report.

39 This list excludes changes that arise merely from changes in economic conditions or from annual updates, for

example changes in interest rates and asset returns, or one additional year of mortality improvement.

PENSION BENEFIT GUARANTY CORPORATION 54 FY 2014 | PROJECTIONS REPORT
Table 1

Arithmetic Means, Standard Deviations and Correlations of Key Financial Market Values

FY 2014 Single-Employer and Multiemployer Model Runs

(across 2015-2024 for 500 economic scenarios)

Long-Term

Treasury

Yield

Return on

30-year

Treasury

Bonds

Stock

Market

Return

Mean 3.4% 3.4% 9.2%

Standard Deviation 1.2% 8.8% 20.3%

Correlations:

• Long-Term Treasury Yield 1.00 -0.27 -0.05

• Return on 30-year Treasury 1.00 0.22

• Stock Market Return 1.00

Table 2

Arithmetic Means and Standard Deviations of Market Rates Derived From Projected Long-Term

Treasury Yields in FY2014 Single-Employer and Multiemployer Model Runs

Long-Term

Corporate Rate Inflation Rate

Wage, Salary and Flat

Benefit Growth Rate

Mean 4.5% 2.8% 4.5%

Standard Deviation 1.2% 1.2% 1.2%

Table 3

Projected Plan Returns40

FY 2014 Single-Employer and Multiemployer Model Runs

Arithmetic Mean

Geometric Mean

6.1%

5.6%

Standard Deviation 10.3%

Table 4

Projected Annual Bankruptcy Probabilities41

FY 2014 Single-Employer Model Runs

Arithmetic Mean 0.6%

Standard Deviation 1.9%

40 The geometric rate of return reflects that negative asset returns set plans back more than positive returns help

them, by reducing the base of assets. This is particularly important for plans whose benefit payments exceed

contributions.

41 The bankruptcy probability modeling methods and results are more fully described in Boyce, S. and Ippolito, R.

A. (2002), The Cost of Pension Insurance. Journal of Risk and Insurance, 69: 121–170. doi: 10.1111/1539-

6975.00012.

PENSION BENEFIT GUARANTY CORPORATION 55 FY 2014 | PROJECTIONS REPORT
Table 5a

Annual Probability of Plans’ Projected Mass Withdrawal

FY 2014 Multiemployer Model Runs

No Future MPRA Suspensions/Partitions

Arithmetic Mean 3.1%

Standard Deviation 7.9%

Table 5b

Annual Probability of Plans’ Projected Mass Withdrawal

FY 2014 Multiemployer Model Runs

Assuming MPRA Election Rates

Arithmetic Mean 2.6%

Standard Deviation 7.2%

Table 6a

Annual Rate of Plans’ Projected Insolvency

FY 2014 Multiemployer Model Runs

No Future MPRA Suspensions/Partitions

Arithmetic Mean 1.30%

Standard Deviation 0.60%

Table 6b

Annual Rate of Plans’ Projected Insolvency

FY 2014 Multiemployer Model Runs

Assuming MPRA Election Rates

Arithmetic Mean 1.10%

Standard Deviation 0.50%

PENSION BENEFIT GUARANTY CORPORATION 56 FY 2014 | PROJECTIONS REPORT