According to the most recent data from The Multiemployer Retirement Plan Landscape: A Fifteen-Year Look (2003-2017), demographic trends in multiemployer plans have become less favorable as the number of actively working participants have decreased relative to the number of inactive and retired participants. However, plan trustees have made difficult decisions to improve plan funding, and financial markets have recovered somewhat from the 2008 collapse. Due to these actions, the majority of multiemployer defined benefit (DB plans) are in position for continued improvement in their funded condition.
This report is based on the latest available Form 5500 reports filed by 1,358 multiemployer DB pension plans with the U.S. Department of Labor. For the first time, the report tracks trends over a 15-year time horizon and provides new measures for trustees to gauge the status of multiemployer defined benefit plans and benchmark their own plans.
Here are 10 key takeaways from the extensive report on multiemployer defined benefit plans.
Plans in the Study
- The total number of multiemployer DB plans decreased from 1,412 in the 2003 plan year to 1,358 for the 2017 plan year. Conversely, the number of insolvent plans receiving financial assistance from Pension Benefit Guaranty Corporation (PBGC) has generally increased over the past 15 years, reaching 56 plans in 2017.
- The 1,232 ongoing solvent multiemployer plans have total assets of about $541 billion, and they cover about 10.8 million participants and beneficiaries.
- The median number of plan participants is 1,677, while the average number of plan participants is 8,828. At the employer level, the median number of participating employers is 43, while the average number of participating employers is 167.
Plan Demographics
- Another way to analyze plan demographics is to look at the ratio of inactive participants to active participants. In general, the lower the ratio of inactive participants to active participants, the easier it is for a plan to correct any funding shortfall by increasing contribution rates or decreasing future benefit accruals. On the other hand, a higher ratio usually means it is harder for a plan to improve funding through these means. At the end of the 2003 plan year, the ratio of inactive participants to active participants was 1.05. By the end of 2017, the median ratio had increased to 1.62. This is a significant demographic shift over the past 15 years.
Plan Investments
- For this subset of 517 plans, the median annualized return for the 15-year period from 2003 through 2017 was 6.81%. For comparison, the median annualized return for the 15-year period from 2002 through 2016 was 5.33%. The increase in the annualized return was due to the fact that the median return of 13.7% in 2017 was higher than the prior median return of -7.5% in 2002.
- The average asset allocation for multiemployer DB pension plans is 51% to stocks, 20% to corporate bonds, 3% to high-yield bonds, 9% to real estate and 17% to other asset classes.
Plan Cash Flows
- Aggregate employer contributions have increased over the past 15 years, from $13.7 billion in 2003 to $30.8 billion in 2017. At the same time, disbursements have also increased over the past 15 years, from $24.3 billion in 2003 to $42.8 billion in 2017. Net cash flows became increasingly negative beginning in 2009, with the total shortfall growing from $9.3 billion in 2008 to $14.1 billion in 2013, but they have decreased since that time to $12.0 billion in 2017.
- Overall, 20% of plans have a positive cash flow, while the other 80% of plans have a negative cash flow.
Plan Funding
- Under the Pension Protection Act of 2006 (PPA), the funded percentage is calculated as the ratio of the actuarial value of assets over the actuarial accrued liability. The median funded percentage for calendar year multiemployer pension plans was 82% at December 31, 2003. The historic investment losses of 2008 brought the median funded percentage down to 67% on December 31, 2008. Due to better-than-assumed returns in 2016 and 2017, the median funded percentage increased to 89% by December 31, 2017.
- Following a period of generally positive returns from 2009 to 2017, combined with corrective actions such as increases in contribution rates and reductions in benefits, 64% of plans were in the green zone for the 2017 plan year. The remaining 36%, of plans were in endangered, seriously endangered, critical, or critical and declining status.
More About Multiemployer DB Plans
For the seventh year in a row, Horizon Actuarial Services, LLC and the International Foundation of Employee Benefit Plans have partnered on The Multiemployer Retirement Plan Landscape: A Fifteen-Year Look, an annual benchmarking report on multiemployer pension and retirement plans. Trustees can use the report to benchmark their own plans and understand how the overall multiemployer system is doing. Access the full report to see the complete findings.
[Related Reading: Best Practices in Trustee Recruitment, Selection and Retention]
Justin Held, CEBS
Senior Research Analyst at the International Foundation
[Upcoming Virtual: 66th Annual Employee Benefits Virtual Conference | November 2-19, 2020]
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