Data and Research February 21, 2017

Multiemployer Plans Have Some Successes

Account balances in multiemployer DC plans have grown, and the funded percentage of multiemployer DB plans has improved, a study shows.
Reported by

A new report, The Multiemployer Retirement Plan Landscape: A Ten-Year Look (2005-2014), from Horizon Actuarial Services, LLC, and the International Foundation of Employee Benefit Plans (IFEBP), shows average account balances in defined contribution (DC) multiemployer retirement plans have grown over the past decade, along with contributions and investment returns.

The average account balance for a participant in the median multiemployer defined contribution (DC) plan was about $38,200 at the end of 2014, up from about $36,100 at the end of 2013. In 2014, these DC plans saw a median investment return of 5.6%. Rates of return were volatile over the last decade. The median annualized return from 2005 to 2014 was 5.3%.

Get more!  Sign up for PLANSPONSOR newsletters.

For multiemployer defined benefit (DB) plans, investment returns over the past decade were also volatile—marked by the financial collapse in 2008, when the median investment return for multiemployer DB plans was -23.5%. However, the median annualized return was about 5.6% over the 10-year period from 2005 through 2014. The 2014 median investment return was 6.3%, slightly below the 7.5% median return assumption.

As of December 31, 2014, the median funded percentage for multiemployer DB plans was 85.9% (based on the market value of assets). This was a significant improvement over the median funded percentage at the end of 2008, which was 67.6%, and approached the median funded percentage of 88.7% from the beginning of 2008. The increased funding allowed more plans to enter the “green zone” under the Pension Protection Act (PPA). Sixty-one percent of funds were in the green zone at the end of 2014.

NEXT: Still challenges

Over the past decade (2005 through 2014), few plans saw increases in the number of active participants, while the number of inactive participants continued to grow. Looking over the last 10 years, in 2005 the ratio of active participants to inactive participants was 9:10—at the end of 2014 the ratio had declined to 6:10.

“Although the active-to-inactive participants ratio has remained fairly steady over the past few years, it is still considerably less favorable then it was prior to the 2008 recession,” explains Jason Russell, consulting actuary, Horizon Actuarial Services, LLC. “As plans continue to mature and their cash flows become more negative, they are relying on their investment returns to sustain them into the future.”

At the end of 2014, there were 1,380 multiemployer DB plans—1,334 plans were financially solvent, and 46 were insolvent and receiving assistance from the Pension Benefit Guaranty Corporation (PBGC). The plans had assets of more than $480 billion, and they covered 10.5 million participants and their beneficiaries.

At the end of 2014, there were 1,102 multiemployer DC retirement plans, with total assets of more than $130 billion. These plans covered 3.8 million participants and beneficiaries. The majority of plans—80%—were offered in tandem with a DB plan.

For more information on The Multiemployer Retirement Plan Landscape: A Ten-Year Look (2005-2014), visit www.ifebp.org/MultiemployerRetirement.

Products February 21, 2017

Groom Law Offers Plan Document Compliance Service

The pullback of the IRS determination letter program calls for a new approach to maintain tax-qualification of retirement plan documents, Groom says.
Reported by

Groom Law Group announced it will offer plan sponsors a practical solution for maintaining Internal Revenue Service (IRS)-compliant retirement plan documents now that the IRS is no longer issuing periodic determination letters.

The IRS ended its five-year determination letter cycle for individually designed plans. Groom says the abrupt pullback of this 60-year-old IRS program calls for a new approach for employers to maintain the tax-qualification of their plan documents. Such IRS qualification is essential to preserve fully tax-deductible employer contributions and pre-tax participant contributions; tax exemption for trust investment earnings; and tax deferral and rollovers for employees.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

Groom has developed its Document Compliance Service (DCS) for individually designed plans that have current IRS determination letters. The service builds on a plan’s last determination letter from the IRS, the IRS’ new “required amendment” lists and Groom’s extensive and continuous monitoring of legal developments as they arise. The end result of this effort will be an opinion intended to confirm continued satisfaction of the IRS document requirements applicable to an employer’s plan(s).

“We have designed this program recognizing that the IRS has emphasized the importance of an opinion of legal counsel for individually designed plans as we go forward,” David Levine, with Groom Law Group, Chartered, tells PLANSPONSOR.

DCS is available for tax-qualified plans of all types, including pension, cash balance, pension equity, profit sharing, 401(k), employee stock ownership plans (ESOPs) and money purchase pension plans. And all types of plan sponsors may take advantage of the service, including corporate, tax-exempt, governmental and other entities.

Without updated determination letters, plan sponsors and fiduciaries may still need documentation of IRS plan qualification to satisfy requests from plan auditors, compliance officers, investment managers and third-party administrators, among others.

Groom designed DCS to serve as a key internal control for an organization’s plans, and to help avoid costly IRS plan document corrections. DCS also is expected to be available to support merger and acquisition activities.

“We have designed this program to assist plan sponsors and their service providers with coming up with practical solutions that allow them to represent to investment managers and courts of law that their plans satisfy the IRS qualification requirements,” Levine adds.

«