NOTES TO THE FINANCIAL STATEMENTS 130

Note 20. Contingencies

Loss contingencies are existing conditions, situations, or sets of circumstances involving uncertainty as to possible loss 

to an entity. The uncertainty will ultimately be resolved when one or more future events occur or fail to occur. The 

government is subject to loss contingencies related to:

• Legal and environmental and disposal; 

• Insurance and guarantees; and

• Other Contingencies.

The government is involved in various litigation, including administrative proceedings, legal actions, and tort claims, 

which may ultimately result in settlements or decisions adverse to the government. In addition, the government is subject to 

loss contingencies for a variety of environmental cleanup costs for the storage and disposal of hazardous material as well as 

the operations and closures of facilities at which environmental contamination may be present. Refer to the Legal 

Contingencies and Environmental and Disposal Contingencies section of this note for additional information.

The government provides insurance and guarantees via a variety of programs. At the time an insurance policy or 

guarantee is issued, a contingency arises. The contingency is the risk of loss assumed by the insurer, that is, the risk of loss 

from events that may occur during the term of the policy. For additional information, refer to the Insurance and Guarantees 

sections of this note.

Other contingencies include those related to the government’s establishment of construction budgets without receiving 

appropriations from Congress for such projects, appeals of Medicaid audit and program disallowances by the states, and 

potential draws by GSEs. The government is also a party to treaties and other international agreements. These treaties and 

other international agreements address various issues including, but not limited to, trade, commerce, security, and law 

enforcement that may involve financial obligations or give rise to possible exposure to losses. For additional information on 

the government’s other loss contingencies, refer to the Other Contingencies section of this note.

Financial Treatment of Loss Contingencies

The reporting of loss contingencies depends on the likelihood that a future event or events will confirm the loss or 

impairment of an asset or the incurrence of a liability and the likelihood of loss can range from probable to remote. SFFAS 

No. 5, Accounting for Liabilities of the Federal Government, identifies the probability classifications used to assess the range 

for the likelihood of loss as probable, reasonably possible, and remote. Loss contingencies where a past event or exchange 

transaction has occurred, and where a future outflow or other sacrifice of resources is assessed as probable and measurable, 

are accrued in the financial statements. Loss contingencies that are assessed to be at least reasonably possible are disclosed in 

this note, and loss contingencies that are assessed as remote are neither reported in the financial statements, nor disclosed in 

the notes. The following table provides criteria for how federal entities are to account for loss contingencies, based on the

likelihood of the loss and measurability.3

3 In addition, a third condition must be met to be a loss contingency: a past event or an exchange transaction must occur.
 131 NOTES TO THE FINANCIAL STATEMENTS

Likelihood of future 

outflow or other 

sacrifice of resources

Loss amount can be 

reasonably measured

Loss range can be 

reasonably measured

Loss amount or range 

cannot be reasonably 

measured

Probable

Future confirming 

event(s) are more likely 

to occur than not.4

Accrue the liability. 

Report on Balance Sheet 

and Statement of Net 

Cost.

Accrue liability of best 

estimate or minimum 

amount in loss range if 

there is no best estimate, 

and disclose nature of 

contingency and range of 

estimated liability.

Disclose nature of 

contingency and include 

a statement that an 

estimate cannot be 

made.

Reasonably possible

Possibility of future 

confirming event(s) 

occurring is more than 

remote and less than likely.

Disclose nature of 

contingency and 

estimated amount.

Disclose nature of 

contingency and 

estimated loss range.

Disclose nature of 

contingency and include 

a statement that an 

estimate cannot be 

made.

Remote

Possibility of future 

event(s) occurring is 

slight.

No action is required. No action is required. No action is required.

Loss contingencies arise in the normal course of operations and their ultimate disposition is unknown. Based on 

information currently available, however, it is management’s opinion that the expected outcome of these matters, individually

or in the aggregate, will not have a material adverse effect on the financial statements, except for the litigation and insurance 

described in the following sections, which could have a material adverse effect on the financial statements.

Certain significant consolidation entities apply financial accounting and reporting standards issued by FASB, and such 

entities, as permitted by SFFAS No. 47, Reporting Entity, are consolidated into the U.S. government’s consolidated financial 

statements without conversion to financial and reporting standards issued by FASAB.5 Generally, under FASAB standards, a 

contingency is considered “probable” if the future event or events are more likely than not to occur. Under FASB standards, a

contingency is considered “probable” if the future event or events are likely to occur. “Likely to occur” is considered to be 

more certain than “more likely than not to occur.” Under both accounting frameworks, a contingency is considered 

“reasonably possible” if occurrence of the future event or events is more likely than remote, but less likely than “probable” 

(“probable” as defined within each corresponding accounting framework). 

4 For pending or threatened litigation and unasserted claims, the future confirming event or events are considered “probable” if such events are likely to 

occur.

5 Significant consolidation entities that apply FASB standards without conversion to FASAB standards are FDIC, PBGC, FCSIC, TVA, Smithsonian 

Institution, NRRIT, and USPS.
NOTES TO THE FINANCIAL STATEMENTS 132

Legal Contingencies and Environmental and Disposal Contingencies

Legal Contingencies and Environmental and Disposal Contingencies as of 

September 30, 2020, and 2019 

2020 2019

Estimated Range of Loss Estimated Range of Loss

for Certain Cases 2 for Certain Cases 2

Accrued Accrued

(In billions of dollars) Liabilities 1 Lower End Upper End Liabilities 1 Lower End Upper End

Probable ............................ 40.1 39.4 41.9 38.4 37.4 39.1

Reasonably possible............ N/A 9.7 33.9 N/A 6.7 29.2

1 Accrued liabilities are recorded and presented in other liabilities on the Balance Sheet.

2 Does not reflect the total range of loss; many cases assessed as reasonably possible of an unfavorable outcome did not include 

estimated losses that could be determined.

Notes: "N/A" indicates not applicable. 

Management and legal counsel have determined that it is “probable” that some legal actions, litigation, tort claims, and

environmental and disposal contingencies will result in a loss to the government and the loss amounts are reasonably

measurable. The estimated liabilities for “probable” cases against the government are $40.1 billion and $38.4 billion as of

September 30, 2020, and 2019, respectively, and are included in “Other Liabilities” on the Balance Sheet. For example, the

U.S. Supreme Court 2012 decision in Salazar v. Ramah Navajo Chapter, and subsequent cases related to contract support

costs have resulted in increased claims against the Indian Health Service, which is a component within HHS. As a result of

this decision, many tribes have filed claims. Some claims have been paid and others have been asserted but not yet settled. It

is expected that some tribes will file additional claims for prior years. The estimated amount recorded for contract support

costs is $5.5 billion in FY 2020 and $5.2 billion in FY 2019.

There are also administrative claims and legal actions pending where adverse decisions are considered by management

and legal counsel as “reasonably possible” with an estimate of potential loss or a range of potential loss. The estimated

potential losses reported for such claims and actions range from $9.7 billion to $33.9 billion as of September 30, 2020, and

from $6.7 billion to $29.2 billion as of September 30, 2019. For example, Treasury is party to a number of legal cases filed in

the U.S. Court of Federal Claims alleging that the U.S. government violated statutory and regulatory mandates to make

proper payments to plaintiffs under ARRA, Section 1603, for having placed certain energy properties into service. Treasury

has determined there is a reasonably possible likelihood of an unfavorable outcome in some of the cases totaling

approximately $460 million as of September 30, 2020 and 2019.

In accordance with the NWPA, DOE entered into more than 68 standard contracts with utilities in which, in return for

payment of fees into the Nuclear Waste Fund, DOE agreed to begin disposal of SNF by January 31, 1998. Because DOE has

no facility available to receive SNF under the NWPA, it has been unable to begin disposal of the utilities’ SNF as required by

the contracts. Therefore, DOE is subject to significant SNF litigation claiming damages for partial breach of contract as a

result of this delay. Based on settlement estimates, the total liability estimate as of September 30, 2020 is $39.2 billion. After

deducting the cumulative amount paid of $8.6 billion as of September 30, 2020 under settlements, and as a result of final

judgments, the remaining liability is estimated to be approximately $30.6 billion, compared to approximately $28.5 billion as

of September 30, 2019.

A number of class action and/or multiple plaintiff tort suits have been filed against current and former DOE contractors

in which the plaintiffs seek damages for alleged exposures to radioactive and/or toxic substances as a result of the historic

operations of DOE’s nuclear facilities. Collectively, in these cases, damages of $1.2 billion are currently sought.

Numerous litigation cases are pending where the outcome is uncertain or it is reasonably possible that a loss has been

incurred and where estimates cannot be made. There are other litigation cases where the plaintiffs have not made claims for
 133 NOTES TO THE FINANCIAL STATEMENTS

specific dollar amounts, but the settlement may be significant. The ultimate resolution of these legal actions for which the

potential loss could not be determined may materially affect the U.S. government’s financial position or operating results.

A number of cases were filed in the U.S. Court of Federal Claims and U.S. District Courts in which the plaintiffs allege,

among other things, that the U.S. government took their property, breached contractual rights of preferred and common

stockholders, and breached fiduciary duties when the third amendments to the SPSPAs between Treasury and each GSE were

executed in August 2012. One case also alleges that the U.S. government took plaintiffs’ property and contractual rights

when the GSEs were placed into conservatorship and entered into the SPSPAs with Treasury in September 2008. In the U.S.

Court of Federal Claims, the plaintiffs seek just compensation and other damages from the U.S. government. With respect to

certain cases pending before the U.S. Court of Federal Claims, the U.S. government’s motion to dismiss was granted with

respect to certain claims and denied with respect to certain other claims. The parties have appealed, and the appeals are still

pending. In the U.S. District Courts, the plaintiffs seek to set aside the third amendments to the SPSPAs as well as damages,

and in some cases a declaration that the FHFA’s structure violates the separation of powers. A case in the U.S. District Court

for the Southern District of Texas was dismissed by that District Court; and the Fifth Circuit Court of Appeals affirmed

dismissal of all claims against Treasury but allowed one claim against FHFA to proceed that is pending before the U.S.

Supreme Court. Cases in the U.S. District Courts for the District of Minnesota and Western District of Michigan were

dismissed by that District Courts, and appeals are pending. A case in the Eastern District of Pennsylvania remains in

litigation, and a motion to dismiss is pending. Treasury is unable to determine the likelihood of an unfavorable outcome or an

estimate of potential loss in these cases at this time.

Insurance and Guarantees

As discussed in Note 1.M—Insurance and Guarantee Program Liabilities, certain consolidation entities with significant

insurance and guarantee programs apply FASB standards, while other insurance programs are accounted for in the

consolidated financial statements pursuant to FASAB standards. Please refer to Note 16—Insurance and Guarantee Program

Liabilities for insurance and guarantee liabilities and Note 13—Federal Employee and Veteran Benefits Payable for insurance

related to federal employee and veteran benefits.

Entities Reporting under FASB

PBGC, FCSIC, and FDIC are consolidation entities with significant insurance or guarantee programs that apply FASB

standards, which provide that an entity shall disclose information about certain loss contingencies even though the possibility

of loss may be remote.

PBGC insures pension benefits for participants in covered defined benefit pension plans. Under current law, PBGC's

liabilities may be paid only from PBGC's assets. Accordingly, PBGC's liabilities are not backed by the full faith of the U.S.

government. As of September 30, 2020, PBGC's single-employer and multi-employer pension insurance programs had

$143.5 billion and $3.1 billion in total assets, respectively. In FY 2019, PBGC reported pension insurance program total

assets for single-employer and multi-employer of $128.1 billion and $2.9 billion, respectively.

PBGC operates two separate pension insurance programs: a single-employer program and a multi-employer program.

The single-employer program covered about 23.5 million people (excluding those in plans that PBGC has trusteed) in FY

2020, down from about 24.7 million people in FY 2019, and the maximum guaranteed annual benefit for participants who are

in a plan that terminated in FY 2020 and commence benefits at age 65 is $69,750. The maximum guaranteed benefit for

single-employer plan participants varies with a number of factors such as the date of the sponsoring employer's bankruptcy

and the age at which the participant commences benefits. The number of covered ongoing plans at the end of FY 2020 was

about 23,200.

The multi-employer program covers about 10.9 million participants in about 1,400 insured plans and the maximum

annual benefit is $12,870 to a participant who worked for 30 years in jobs covered by the plan. The maximum benefit for

multi-employer plan participants varies with covered service and would be lower if the participant worked less than 30 years

and higher if the participant worked more than 30 years. PBGC projects a high likelihood that the multi-employer program

will become insolvent by the end of 2026, and that insolvency is a near certainty by the end of 2027. At that point its

financial assistance to multi-employer plans will be limited to the premiums collected by the program. Please refer to PBGC

financial statements for additional information. On March 11, 2021, the President signed into law the American Rescue Plan

Act, 2021. This legislation, among others, establishes a special financial assistance program for financially troubled multiemployer pension plans insured by PBGC. Management is currently assessing the effect of this legislation on PBGC’s

liabilities and contingency disclosures (including the estimated insolvency date for the multi-employer program), but the

effect is not currently reasonably estimable. Please refer to Note 29—Subsequent Events for additional information.

FCSIC insures the timely payment of principal and interest on Systemwide Debt Securities. Systemwide Debt Securities

are the general unsecured joint and several obligations of the Farm Credit System Banks. Systemwide Debt Securities are not

obligations of and are not guaranteed by the U.S. government. As stated in the Farm Credit Quarterly Information Statement
NOTES TO THE FINANCIAL STATEMENTS 134

of the Farm Credit System, outstanding Systemwide Debt Securities totaled $309.1 billion and $282.9 billion as of September

30, 2020, and 2019 respectively. The insurance provided by FCSIC is also not an obligation of and is not guaranteed by the

U.S. government. Under current law, if FCSIC does not have sufficient funds to pay unpaid principal and interest on insured

Systemwide Debt Securities, the Farm Credit System Banks will be required to make payments under joint and several

liability. As of September 30, 2020, and 2019, FCSIC reported an Insurance Fund balance of $5.4 billion and $5.1 billion,

respectively.

FDIC insures bank and savings association deposits, which exposes FDIC to various risks. FDIC has estimated total

insured deposits of $8,926.6 billion as of September 30, 2020, and $7,736.9 billion as of September 30, 2019, for the DIF.

The increase in insured deposits is primarily a result of actions taken by monetary and fiscal authorities, and individuals,

businesses, and financial market participants in response to the COVID-19 pandemic.

The government has guarantee contingencies that are reasonably possible in the amount of $185.6 billion as of

September 30, 2020, and $165.6 billion as of September 30, 2019.

PBGC reported $185.5 billion and $165.5 billion as of September 30, 2020, and 2019, respectively, for the estimated

aggregate unfunded vested benefits exposure to the PBGC for private-sector single-employer and multi-employer defined

benefit pension plans that are classified as a reasonably possible exposure to loss. As of September 30, 2020, PBGC’s

estimate of its single-employer reasonably possible exposure increased to $176.2 billion.6 The single-employer program

contingencies increase of $21.5 billion is largely due to the decrease in the interest factors used for estimating exposure and

the increase in the number of companies with lower than investment grade bond ratings and/or credit scores. PBGC’s

estimate of its multiemployer reasonably possible exposure decreased to $9.3 billion in FY 2020. The $1.5 billion decrease in

the multi-employer program contingency exposure is primarily due to the net effect of removing three larger plans that are no

longer classified as reasonably possible.

FDIC reported $0.1 billion as of September 30, 2020, and 2019 for additional risk identified in the financial services

industry that could result in additional loss to the DIF should potentially vulnerable insured institutions ultimately fail. Actual

losses, if any, will largely depend on future economic and market conditions.

Entities Reporting under FASAB

The total amount of coverage provided by an insurer as of the end of the reporting period is referred to as insurance inforce. Insurance in-force represents the total amount of unexpired insurance arrangements for the corresponding program as

of a given date. Insurance in-force is presented to provide the reader with a better understanding of the unexpired insurance

arrangements that are not considered a liability. It is extremely unlikely that losses equal to the maximum risk exposure

would be incurred. The table below shows the estimate of insurance in-force for consolidation entities with significant

insurance programs that apply FASAB standards in accordance with SFFAS No. 51, Insurance Programs.

Insurance In-force as of September 30, 2020, and 2019

(In billions of dollars) 2020 2019

Insurance In-force:

Ginnie Mae - HUD .................................................................................... 2,117.7 2,092.8

National Credit Union Share Insurance Fund - NCUA.................................. 1,400.0 1,200.0

National Flood Insurance Program - DHS ................................................... 1,338.9 1,330.0

Federal Crop Insurance - USDA................................................................. 127.0 109.0

Ginnie Mae insures MBS and commitments, which exposes Ginnie Mae to various risks. The Ginnie Mae MBS are

backed by pools of mortgage loans guaranteed by FHA, Public and Indian Housing, Rural Housing Service, and VA.

Accordingly, Ginnie Mae’s credit risk related to outstanding MBS is greatly mitigated by guarantees discussed in Note 4–

Direct Loans and Loan Guarantees Receivable, Net and Loan Guarantees Liability.

NCUSIF, managed by NCUA, insures member shares (deposits) in all federal credit unions and in qualifying statechartered credit unions requesting insurance. The $200.0 billion increase in the NCUSIF as of September 30, 2020 was due to

the stock market volatility related to the COVID-19 pandemic, stimulus payments from the CARES Act, decreasing

6 The estimate of the reasonably possible exposure to loss for the single-employer plans was measured as of December 31, 2019.
 135 NOTES TO THE FINANCIAL STATEMENTS

unemployment rates and a strengthening economy, extremely elevated personal savings rates, and the continuation of loan

forbearance programs by various financial institutions. NCUSIF insures the balance of each members’ accounts, dollar-fordollar, up to at least the standard maximum share insurance amount of $250,000.

NFIP, managed by FEMA, is considered an exchange transaction insurance program and pays claims to policy holders

who experience flood damage due to flooding within the NFIP rules and regulations. FEMA is authorized to secure

reinsurance coverage from private reinsurance and capital markets to maintain the financial ability of the program to pay

claims from major flooding events.

FEMA, a component of DHS, is authorized to borrow from Treasury up to $30.4 billion to fund the payment of flood

insurance claims and claims-related expenses of the NFIP. This authority is used only as needed to pay existing obligations

for claims and expenses. Insurance premiums collected are used to pay insurance claims and to repay borrowings. As of

September 30, 2020, and 2019, FEMA had drawn from Treasury $20.5 billion, leaving $9.9 billion available to be borrowed.

Premiums collected by FEMA for the NFIP based on subsidized rates are not sufficient to cover the debt repayments. Given

the current premium rate structure, FEMA will not be able to generate sufficient resources from premiums to repay its debt.

The Federal Crop Insurance Program, administered by USDA’s FCIC, is considered a short-duration exchange

transaction insurance program. The crop insurance policies insure against unexpected declines in yield and/or price due to

natural causes. There were approximately 1.1 million crop insurance policies in force for crop years 2020, and 2019. The

insurance policies are structured as a contract between Approved Insurance Provider and producers, with the FCIC providing

reinsurance to Approved Insurance Providers. Crop insurance policies automatically renew each year, unless producers

cancel them by a published annual deadline.

FCIC may request the Secretary of Agriculture to provide borrowing authority funds of the Commodity Credit

Corporation if at any time the amounts in the insurance fund are insufficient to allow FCIC to carry out its duties. Even

though the authority exists, FCIC did not request Commodity Credit Corporation funds in the reporting period. USDA has

permanent indefinite appropriations for the crop insurance program used to cover premium subsidy, delivery expenses, losses

in excess of premiums, and research and delivery costs. FCIC has no outstanding borrowing as of September 30, 2020.

For additional information, please refer to HUD, NCUA, DHS, and USDA financial statements.

The Terrorism Risk Insurance Act of 2002, as amended, created TRIP, which requires participating insurers to make

insurance available for losses resulting from acts of terrorism and provides a federal government backstop for the insurers’

resulting financial exposure. This statute was enacted following the terrorist attacks on September 11, 2001 to address

disruptions in the market for terrorism risk insurance, to help ensure the continued availability and affordability of

commercial property and casualty insurance for terrorism risk, and to allow for the private markets to stabilize and build

insurance capacity to absorb any future losses for terrorism events. Most recently, the Terrorism Risk Insurance Program

Reauthorization Act of 2019 authorized TRIP until December 31, 2027. The claims process under TRIP commences once the

Secretary of the Treasury (in consultation with the Secretary of the DHS and the U.S. Attorney General) certifies an event as

an “act of terrorism.” In the event of certification of an “act of terrorism” insurers may be eligible to receive reimbursement

from the U.S. government for associated insured losses assuming an aggregate insured loss threshold (“Program Trigger”)

has been reached once a particular insurer has satisfied its designated deductible amount. For calendar years 2020 and 2019,

the Program Trigger amount was $200.0 million and $180.0 million, respectively. The Program Trigger will remain at $200.0

million each year through the expiration of the Program in 2027. Insured losses above insurer deductibles will be shared

between insurance companies and the U.S. government. TRIP includes both mandatory and discretionary authority for

Treasury to recoup federal payments made under TRIP through policyholder surcharges under certain circumstances, and

contains provisions designed to manage litigation arising from or relating to a certified act of terrorism. There were no claims

under TRIP as of September 30, 2020 or 2019.

Other Contingencies

DOT, HHS, and Treasury reported the following other contingencies:

FHWA has a reasonably possible contingency due to their authority to approve projects using advance construction

under 23 U.S.C. 115(a) and 23 CFR 630.701-630.709. FHWA does not guarantee the ultimate funding to the states for these

“advance construction” projects and, accordingly, does not obligate any funds for these projects. When funding becomes

available to FHWA, the states can then apply for reimbursement of costs that they have incurred on such projects, at which

time FHWA can accept or reject such requests. As of September 30, 2020, and 2019, FHWA has pre-authorized $68.7 billion

and $66.8 billion, respectively, under these arrangements. Congress has not provided appropriations for these projects and no

liability is accrued in the DOT consolidated financial statements.

Contingent liabilities have been accrued as a result of Medicaid audit and program disallowances that are currently

being appealed by the states. The Medicaid amounts are $3.7 billion and $9.9 billion for fiscal years ending September 30,

2020, and 2019, respectively. The states could return the funds through payments to HHS, or HHS could recoup the funds by

reducing future grant awards to the states. Conversely, if the appeals are decided in favor of the states, HHS will be required
NOTES TO THE FINANCIAL STATEMENTS 136

to pay these amounts. In addition, certain amounts for payment have been deferred under the Medicaid program when there is

reasonable doubt as to the legitimacy of expenditures claimed by a state. There are also outstanding reviews of the state

expenditures in which a final determination has not been made.

Treasury has a contingency for future draws by the GSEs. There were no probable future draws accrued at September

30, 2020 and 2019 and the total amount of reasonable possible future draws is not estimable as of September 30, 2020. Refer

to Note 9—Investments in Government-Sponsored Enterprises for additional information.

When a contingency originates from the U.S. government’s involvement in a treaty or other international agreement, the

responsible reporting entity must establish a contingent liability, and include a required note disclosure to its financial

statements, or both in accordance with guidance in SFFAS No. 5. Refer to Note 19—Commitments for additional

information concerning commitments related to treaties and other international agreements.