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Data and Research February 9, 2018
Plan Withdrawals Continue to Affect Multiemployer Plans
Based on a partial year of data for 2016, 1.3% of all employers withdrew, affecting 19% of plans that covered 67% of all participants, the Society of Actuaries found. Withdrawal liability assessments were not nearly enough to cover these plan’s unfunded liabilities.
Reported by Rebecca Moore
As assessment of multiemployer pension plan (MEPP) withdrawals by the Society of Actuaries (SOA) shows on average over 2009 through 2015, 1.2% of all participating employers withdrew annually, affecting 18% of plans which covered 63% of all participants.
In 2015, 0.8% of all employers withdrew, affecting 15% of plans which covered 63% of all participants. Based on a partial year of data for 2016, 1.3% of all employers withdrew, affecting 19% of plans that covered 67% of all participants.
Payment of withdrawal liabilities varied and didn’t cover much of unfunded liabilities. On average over 2009–2015, assessed withdrawal liabilities were 0.3% of aggregate plan liabilities for zone determination. But the impact on individual plans varied widely. While over half of plans’ assessed withdrawal liabilities were less than one-tenth of 1% (0.001%) of plan liabilities, a small number of plans saw assessed withdrawal liabilities of more than 10% of plan liabilities.
The SOA notes that generally, the remaining employers bear the additional burden, as do participants via potential benefit cuts or lesser benefit increases. If the plan should become insolvent, the Pension Benefit Guaranty Corporation (PBGC) bears part of the burden up to guaranteed benefit levels and often participants suffer further benefit cuts to the extent their benefits exceed the guarantee. The PBGC program for multiemployer plans is expected to run out of money by the end of 2025.
The study report explains that participants of withdrawn employers are commonly known as “orphaned” participants. To the extent that withdrawal liability paid does not cover the cost of orphaned participants’ benefits, any remaining funding costs must be borne by the remaining contributing employers and their employees as well as by all the plan’s participants via lower or even reduced benefits.
In addition, the presence of orphaned participants typically increases a plan’s risk of declining funded status. For example, in the event of poor investment performance that results in increased unfunded liabilities, the liability associated with benefits earned by orphaned participants also typically increases. However, the orphans do not have an employer contributing on their behalf. Increased costs must again be borne by the remaining contributing employers and their employees as well as by all the plan’s participants via lower or even reduced benefits.
The SOA study found the percentage of participants who are orphaned increased over the period studied. Across all industries, the percentage of participants who are orphaned increased from 12% in 2009 to 18% in 2015.