Attachment 1 - Legacy PIMS Fact Sheet.pdf

Legacy PIMS Fact Sheet

Single-Employer (SE) PIMS The Policy Research and Analysis Department (PRAD) uses the PIMS (pension insurance modeling system) model to project PBGC's future financial status for the annual Projections Report and for technical assistance requests coming from policymakers. It is also used to evaluate PBGC’s exposure and likelihood of future claims and to quantify the amount of risk facing the PBGC’s insurance programs. SE PIMS is a stochastic (i.e., random) simulation model that PBGC uses to evaluate its exposure and likelihood of future claims and to quantify the amount of risk facing the single-employer insurance program. SE PIMS portrays PBGC’s future financial condition as a function of a variety of economic parameters. For further discussion, please see the PIMS webpage at PBGC.GOV.

SE PIMS has over 55,000 lines of computer code written in C++ programming language. The input database for the model includes significant details on a sample of about 500 pension plans, key financial variables from approximately 400 companies that sponsor those pension plans, details on the PBGC's current assets and benefit payment obligations, and recent history of key financial market returns. Pension plan and actuarial data are taken from the Form 5500, the Schedule SB (MB for Multiemployer PIMS, see below) and attachments, and includes benefit formulae, age-service matrices of active workers, numbers of retirees, benefit payouts, actuarial assumptions, and schedules of amortization bases.

The program simulates thousands of random scenarios of potential future outcomes using a pseudorandom number generator and measures of the volatility of key variables and the correlation among them. The scenarios projected in the simulation extend up to 20 years into the future. In each year of a scenario, the program simulates:

a) Annual returns of stock and bond market indices; changes to the financial variables of each plan sponsor.

b) Changes to each pension plan's liabilities reflecting advancements in age and service, as well as retirements and other employment separations, among the active participants, hiring and retirement rates consistent with changes to sponsors' total employment levels, advancement in ages and mortality rates among the retired population, benefit and/or salary level increases, and changes to valuation discount rates.

c) Changes to the asset level of each plan, including asset returns determined by plans' portfolio selections and the simulated market returns, benefit payments to retired participants, and contributions from the plan sponsor meeting the requirements of the Internal Revenue Code’s pension funding rules.

d) Random occurrences of bankruptcy among the pension plan sponsors, with bankruptcy probabilities being determined by each firm's financial variables, and calculation of whether the funding levels of plans sponsored by bankrupt firms implies a claim on the PBGC insurance fund.

e) Changes to PBGC assets and liabilities that reflect premium revenues from plan sponsors, benefit payments to trusteed beneficiaries, asset returns and changes to liability discount rates, age advancement and mortality among beneficiaries, and new claims presented by underfunded plans of bankrupt firms. The program stores output on key variables related to pension funding and PBGC assets and liabilities. The output is analyzed by the PBGC to develop probability distributions over the range of financial outcomes the PBGC could experience in the future. The actuarial component of the program, which tracks plans' liabilities, assets, and contribution requirements through time, represents the most significant component of the model in terms of programming detail and complexity.

PBGC also uses SE PIMS to satisfy statutory requirements under ERISA Section 4008, as amended by the Pension Protection Act of 2006 (PPA of 2006), to produce annually, an actuarial evaluation of PBGC’s expected operations for the next five years for publication as part of PBGC’s Annual Report. PBGC has chosen in the past to extend this projection to ten years instead of the required five. SE PIMS is updated regularly for legislative, regulatory and/or policy changes. The model was critical to PBGC’s technical assistance in the legislative processes that led to enactment of the Deficit Reduction Act of 2005, PPA of 2006, the Worker, Retiree and Employer Recovery Act of 2008, and American Rescue Plan Act of 2021.

SE PIMS is used to evaluate the financial impact on ongoing pension plans, their sponsors, and participants, PBGC finances, and the Federal budget of numerous and varied legislative proposals considered by the Executive and Legislative branches, the Congressional Budget Office, the Joint Committee on Taxation, and the Office of Management and Budget (OMB).

PBGC has also used SE PIMS at the request of the Government Accountability Office (GAO) and other Federal agencies/Departments to conduct special analyses to assess the financial condition of PBGC’s single-employer program and evaluate legislative/regulatory/policy alternatives that impact PBGC’s long-term single-employer financial condition.

SE PIMS also interfaces with PBGC’s deterministic Excel-based Budget Forecasting Model (Budget Model) to provide input on expected future claims and variable rate premium revenue for PBGC’s Federal budget forecasts submitted to the Department of Labor (DOL) and OMB.

The Budget Model is a microcosm of PBGC’s accounting system and can produce deterministic forecasts of the financial condition of PBGC’s single-employer and multiemployer insurance programs for up to 30 years.

Multiemployer (ME) PIMS Like SE PIMS, PRAD’s ME PIMS is also a stochastic (i.e., random) simulation model that PBGC uses to evaluate its exposure and likelihood of future claims, to quantify the amount of risk facing the multiemployer insurance program, and to satisfy PBGC’s statutory requirement under Section 4022 of ERISA (requires PBGC to conduct quinquennial studies of the multiemployer insurance program in order to determine the adequacy of multiemployer premium rates and benefit guarantees).

ME PIMS shares many features of SE PIMS, as well as reflecting fundamental differences between the single-employer and multiemployer programs, including:

a) A different universe of plans – ME PIMS currently contains data for 1,400 multiemployer pension plans.

b) The failure pattern for multiemployer plans: typically, but not exclusively mass withdrawal from participation by contributing employers followed by insolvency (i.e., plan running out of money), rather than bankruptcy of a single- employer sponsor.

c) The lack of availability of financial data on individual contributing employers participating in multiemployer plans, and the resulting need for stochastic modeling to use variables describing the condition of the plan rather than of its contributing employers.

d) The collective bargaining framework of multiemployer plans, in which employer contribution rates are set through collective bargaining.

e) The ERISA environment, where multiemployer plans have separate rules concerning cost methods (traditional methods still used under PPA), amortization periods, and Funding Improvement and Rehabilitation Plans associated with Endangered and Critical status plans under PPA.

f) Special computations for the Withdrawal Liability payments owed by employers who discontinue making contributions to a plan (individually or en masse).

g) Different levels of PBGC benefit guarantees than for single-employer plans.

h) Different PBGC premium structure and levels than single-employer plans pay.

i) A different employer obligation to failed plans than the single-employer model of sponsor bankruptcy and PBGC trusteeship: in the multiemployer realm PBGC pays periodic cash assistance to allow insolvent plans to continue functioning as ongoing (if wasting) trusts, receiving withdrawal liability payments from former sponsors and continuing to pay participants’ benefits but at the PBGC guarantee levels.

j) Different measurement criteria for booking claims against PBGC, which are computed as the present value of future financial assistance, booked when plans are in mass withdrawal and within 20 years of insolvency, or when they are ongoing but within 10 years of insolvency, and removed from PBGC’s books if they emerge from these criteria.

k) Some financially troubled plans will receive Special Financial Assistance to ensure they are projected to be solvent and pay full benefits through at least 2051. As with SE PIMS, the actuarial component of the ME PIMS program, which tracks plans' liabilities, assets and contribution requirements through time, represents the most significant component of the model in terms of programming detail and complexity.

Both SE PIMS and ME PIMS have been modified many times to meet legislative and regulatory needs during the past decades, resulting in an increase of complexity and decrease of flexibility.

To improve performance and ease of maintenance, PRAD and the Office of Information Technology (OIT) have been engaging in efforts to modernize PIMS, called Transformational PIMS (T-PIMS), beginning with SE PIMS.