Strong Future Seen for Multiemployer DB Plans

A new report, “The Multiemployer Defined Benefit Pension Plan Landscape: A Ten-Year Look (2002-2011),” jointly released by the International Foundation of Employee Benefit Plans and Horizon Actuarial Services, LLC, reveals that multiemployer DB plans have a strongly positive outlook as financial markets improve and plan trustees take steps to ensure their plans remain viable.

Multiemployer DB plans remained resilient despite an unstable period between 2002 and 2011, according to the report. Due to the volatility of the financial markets, most notably the market collapse in 2008, many plans suffered sizable losses. Since that time, the markets have shown significant recovery and resulted in the majority of multiemployer DB plans becoming more stable.

“Since 2008, we’re seeing the same type of gradual improvement in plans to get back to better funding as we did following the 2001 and 2002 investment losses,” says Jason Russell, a consulting actuary in Horizon’s Washington, D.C., office. “Even with the volatility in investments in the last 10 years and the demographic challenges, these plans have improved their overall funding levels, no doubt as a result of difficult decisions made and actions taken by the plan trustees.”

Here are some key findings from the report:

• There were 1,385 multiemployer DB plans with asset values greater than zero, based on available Form 5500 data, as of December 31, 2011, with total assets of $400 billion funding benefits for 10.4 million participants and beneficiaries;

• More than half of multiemployer plans have fewer than 50 participating employers;

• Over the 10-year period studied, few plans saw increases in the number of participants who are actively working and have contributions being made on their behalf. Instead, most plans saw decreases in the number of active participants. At the same time, most plans saw increases in the number of participants who are not actively working, including those who have retired and are receiving benefits; and

• Plan trustees have taken action to improve their plans’ funding levels since 2008. At the end of 2011, the median funded percentage was 75.1%, up substantially compared with 67.4% at the end of 2008, but still short of the 88.7% measured at the beginning of 2008.

Data from the report shows most plans have been resilient, in spite of recent challenges—most notably the shrinking number of actively working participants relative to the number of inactive and retired participants. The biggest challenge for such plans will be demographic changes, says Russell, pointing out that as time goes on, the number of inactive and retired participants will continue to increase relative to active participants.

“As this ratio of actives to inactives declines, it puts more pressure on current contribution rates whenever there is an economic downturn,” says Cary Franklin, a senior consulting actuary and founding principal of Horizon. “Even as plans recover, it will be a challenge for plan sponsors to develop sound and appropriate funding policies and build cushions into their funding policies so that they can weather another storm, while also addressing the demographic challenge.”

The report was created in 2013 using publicly available information from Form 5500 filings. The report summarizes and analyzes key trends in plan demographics, cash flows, investments, funding and costs over the 10-year period from 2002 through 2011.

Information on how to purchase a copy of the report online can be found here.

Horizon Actuarial and the International Foundation are working on a companion report focusing on multiemployer defined contribution pension plans. It is scheduled to be released later in 2014.