Data and Research April 1, 2019

Fewer Multiemployer Pension Plans Receive Sufficient Contributions

The Society of Actuaries also found the average plan spends more to fund its unfunded liability than to fund current benefit accruals, and it costs most per current active participant to pay off a plan’s unfunded liability.

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In 2016, 69% of multiemployer pension plans received sufficient contributions to maintain or reduce their unfunded liabilities, as measured with funding discount rates, according to the Society of Actuaries. This is down from 78% the year before.

Furthermore, the average plan spends more to fund its unfunded liability than to fund current benefit accruals. The Previous Benefit Cost Ratio (PBCR), which compares the annual cost of paying off unfunded liabilities to the total annual cost of funding the plan, including current year’s benefit accruals, increased from 54% in 2015 to 58% in 2016.

It costs most per current active participant to pay off a plan’s unfunded liability. The Previous Benefit Cost (PBC), which measures the annualized cost per current active participant to pay off a plan’s unfunded liability, increased from $2,119 in 2015 to $3,047 in 2016, primarily due to less-than-expected investment returns.

While very few employers withdraw annually, those who do impact a significant number of plans. Between 2009 and 2015, 1.1% of all participating employers withdrew annually, affecting 17% of the plans, which covered 63% of all participants.

Although some plans are in good financial condition, the multiemployer pension system carries significant unfunded liabilities, the Society of Actuaries says. Aggregate unfunded liabilities increased 14% from $133 billion in 2015 to $151 billion in 2016, the most recent year of complete reporting. Factors affecting unfunded liabilities include contributions, plan changes, assumption changes and/or favorable financials and demographics.

Of the 83% of plans whose contributions were sufficient to reduce unfunded liabilities in 2016, half of them were on pace to eliminate unfunded liabilities in 8.3 years. Eighty percent were funding at a pace to eliminate unfunded liabilities within 16.8 years, and 90% were funding at a pace of 23.4 or fewer years.

Compliance April 1, 2019

Court Says DOL Overstepped Boundary with AHP Regulations

A district court has determined that the Department of Labor’s 2018 final regulations on association health plans are unlawful. 

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Last June, the Department of Labor (DOL) finalized regulations to expand the opportunity to offer employment-based health insurance to small businesses through small business health plans, also known as association health plans (AHPs).

According to DOL leadership, the regulations were designed to give small employers a greater ability to join together and gain many of the advantages enjoyed by large employers in the provision of health insurance to employees. However, a new court ruling, responding to lawsuits filed by 11 states and the District of Columbia, has determined that the DOL overstepped its authority in crafting the new regulations. 

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The states alleged that the DOL’s interpretation of the definition of “employer” in the AHP regulations stretches the definition of “employer” beyond what the Employee Retirement Income Security Act’s (ERISA)’s text and purpose will bear. And, the U.S. District Court for the District of Columbia has agreed.

U.S. District Judge John D. Bates notes in his opinion that because the Affordable Care Act (ACA) defines terms key to its implementation—including “employer” and “employee”—according to the definition of these terms in ERISA, the DOL’s final rule expands AHPs in a way that allows small businesses and some individuals to avoid the health care market requirements imposed by the ACA. “The final rule is clearly an end-run around the ACA. Indeed, as the President directed, and the Secretary of Labor confirmed, the final rule was designed to expand access to AHPs in order to avoid the most stringent requirements of the ACA,” Bates wrote.

Bates determined that the DOL’s final rule exceeds the statutory authority delegated by Congress in ERISA. He concluded that the final rule’s provisions defining “employer” to include associations of disparate employers and expanding membership in these associations to include working owners without employees are unlawful and must be set aside.

Industry groups have expressed concern with the court’s ruling, as some AHPs have already been rolled out based on the DOL’s now-defunct rule. According to AssociationHealthPlans.com, chambers of commerce are the single most common organization sponsoring new regional AHPs.

A new study on chamber of commerce association health plans “painfully illustrates the insurance gains that will be lost to small businesses if the recent court ruling is not overturned,” says Kev Coleman, president and founder of AssociationHealthPlans.com. “Should the ruling stand, we will return to the prior unfair system where large companies will pay less than small companies for the same health benefits.”

According to the group, through the new DOL regulation, the same large company insurance model that already covers roughly 95 million Americans was made available to small businesses through associations. “This change has been a matter of market access. The definition and rules related to large company health insurance have not changed,” it says. “Instead, the playing field between small companies and large companies was leveled with respect to health insurance costs. The preservation of this leveling is likely dependent on a successful appeal of Judge Bates’ ruling unless Congress decides to act.”

The Financial Services Institute (FSI) said in a statement: “We urge the Trump Administration to appeal this ruling. What’s at stake is access to quality, affordable health care plans for millions of Americans, and thousands of our members. We have made access to better health care for financial advisers a priority for the last two years, making it a top issue during last year’s Capitol Hill Day, writing a comment letter to the Department of Labor supporting the rule and participating in a coalition that wrote an amicus brief to the court. We will continue to champion this issue. While we wait for an appeal to the ruling, we will continue our work behind the scenes to make better health care for our members a reality.”

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