According to the most recent data from The Multiemployer Retirement Plan Landscape: A Ten-Year Look (2006-2015) demographic trends in multiemployer defined benefit plans have become less favorable, as the number of actively working participants shrank relative to inactive and retired participants—Yet in spite of these challenges, trustees have made the difficult decisions necessary to improve plan funding since the 2008 market collapse, and most plans have shown resilience. The report is based on the latest available Form 5500 data filed by 1,365 multiemployer defined benefit (DB) pension plans.
Here are a few key findings from the extensive report on multiemployer defined benefit plans:
Plans in the Study
- The total number of multiemployer DB plans was 1,427 for the 2006 plan year and increased to 1,430 in 2007 before decreasing to 1,365 for the 2015 plan year.
- At a plan level, 12.7% have asset values of at least $500 million, and 6.9% have values of at least $1 billion. Focusing on medium-sized and smaller plans, 29.2% have assets of at least $100 million but less than $500 million. Over one half (54.4%) have asset values of less than $100 million, and 38.2% have assets of less than $50 million. A small number of plans (5.8%) have assets of less than $5 million. The remaining 3.8% are insolvent and receiving financial assistance from Pension Benefit Guaranty Corporation (PBGC).
- In total, the solvent plans in the study have total assets of about $470 billion.
- At the employer level, 13.3% of solvent plans have at least 10,000 participants, 5.6% have at least 25,000 participants, while 2.6% have 50,000 participants or more. More than one in three (37.3%) plans have fewer than 1,000 participants, and 19.1% have fewer than 500 participants. Only 1.8% of plans have fewer than 100 participants.
- The median number of plan participants is 1,566, while the average number of plan participants is 8,169. The median number of participating employers is 41, while the average number of participating employers is 165.
- Plans cover both active and inactive participants. Inactive participants include deferred vested participants, retired participants and beneficiaries. The aggregate number of participants has increased over the past decade, from 9.78 million at the end of 2006 to 10.63 million at the end of 2015. This increase is due to growth in the number of inactive participants. The aggregate number of active participants declined from 2006 through 2011, but it has stabilized since then.
- Conversely, the number of retired participants increased from 2.54 million to 3.07 million over the period, and the number of beneficiaries of deceased participants increased as well, from 0.46 million to 0.61 million. At the same time, the number of active participants decreased over the past decade, from 4.46 million to 4.0 million, with some fluctuations from year to year.
- Overall, plan populations are growing larger, but the reasons for growth are unfavorable. The number of active participants is declining or remaining steady, while the number of inactive participants is getting larger. At the end of the 2006 plan year, the ratio of active participants to inactive participants was 0.86, and by the end of 2015, the median ratio had declined to 0.60, meaning about six active participants for every ten inactive participants.
Plan Cash Flows
- Aggregate employer contributions increased over the decade, from $18.0 billion in 2006 to $27.9 billion in 2015. Given that the number of active participants decreased over the decade, this increase in employer contributions is likely driven by increases in contribution rates. At the same time, disbursements have also increased over the decade, from $29.1 billion in 2006 to $42.1 billion in 2015. Net cash flows have become increasingly negative, with the total shortfall growing from $11.1 billion in 2006 to $14.3 billion in 2015.
- Another way to evaluate the effects of positive or negative cash flows is to express the net cash flow as a percentage of plan assets. For a plan with a negative cash flow, this percentage represents the return on investments needed to keep the plan’s asset value from declining. The median net cash flow for multiemployer pension plans increased from -3.0% of assets in 2006 to -2.6% in 2007 and, following the market collapse, dropped to -4.3% in 2009. Since then, there has been modest improvement, with the median net cash flow rising to -3.0% in 2015.
- Overall, 27.4% of plans have a positive cash flow, and the other 72.6% of plans have a negative cash flow.
- The median annualized return for the ten-year period from 2006 through 2015 was 5.06%. For comparison, the median annualized return was 5.62% for the ten-year period from 2005 through 2014, 5.85% for the ten-year period from 2004 through 2013 and 5.91% for the ten-year period from 2003 through 2012.
- In examining the year-by-year returns for these plans, it seems that they were hit harder by the market losses in 2008 and did not have the same investment gains realized by other plans in 2009. At the other end of the spectrum, only 5.2% of these plans have annualized returns of 6.5% or more per year.
- The average asset allocation for multiemployer DB pension plans is 50.8% to stocks, 21.0% to corporate bonds, 3.4% to high-yield bonds, 7.8% to real estate and 17.0% to other asset classes.
- Under the Pension Protection Act of 2006 (PPA), plan funded percentages are calculated as the ratio of the actuarial value of assets over the actuarial accrued liability. In 2006, the median funded percentage for multiemployer pension plans was 87.6% and rose to 88.8% in 2007. Unfortunately, the historic investment losses of 2008 brought the median funded percentage down to 67.6%. Positive investment returns during 2009 and 2010 brought the median funded percentage back up to 78.8%, followed by flat returns in 2011, which sent the median funded percentage back down to 74.6%. Favorable returns increased the median funded percentage to 77.9% in 2012, 85.2% in 2013 and 85.6% at end of year 2014. Flat returns in 2015 decreased the median funded percentage to 81.9% for end of year 2015.
- Also under PPA, a multiemployer pension plan’s actuary must certify the plan’s status based on certain tests at the beginning of every plan year. In 2009, immediately following the 2008 market collapse, 33.9% of plans were in the “green zone,” while the remaining 66.1% of plans were in endangered or critical status. For 2015, the percentage of plans in the green zone increased to 63.4%, leaving 36.6% of plans in endangered or critical status. While investment gains from 2009 through 2013 were a major factor in this shift, plan trustees also took significant action to improve funding levels.
- The study analyzed annual plan costs and compared them with employer contributions. As of 2015, the median employer contribution per active participant was $8,765.
- When comparing contributions and costs, it is beneficial to present them as a ratio. For 2007 and 2008, contributions exceeded costs for the median plan, resulting in ratios greater than 1.00. Following investment losses, however, the ratio fell from 1.06 in 2008 to 0.60 in 2009. By 2011, the median ratio of contributions to plan costs had risen to 0.90. For 2014, the median ratio of contributions to plan costs had increased further, to 1.11, and remained at 1.13 in 2015.
Learn More About Multiemployer Defined Benefit Plans
Access the full report to see the complete findings: The Multiemployer Retirement Plan Landscape: A Ten-Year Look (2006-2015).
Justin Held, CEBS
Senior Research Analyst at the International Foundation