According to the most recent data from The Multiemployer Retirement Plan Landscape: A Fifteen-Year Look (2002-2016), demographic trends in multiemployer plans have become less favorable, as the number of actively working participants shrank 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 1,359 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 1,409 in the 2002 plan year to 1,359 for the 2016 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 58 plans in 2016.
- The 1,359 multiemployer plans in the study had a combined market value of assets of about $496 billion.
- The median number of plan participants is 1,572, while the average number of plan participants is 8,325. At the employer level, the median number of participating employers is 42, while the average number of participating employers is 164.
Plan Demographics
- An effective way to analyze plan demographics is to look at the ratio of active participants to inactive participants. At the end of the 2002 plan year, the ratio of active participants to inactive participants was 1.04. By the end of 2016, the median ratio had declined to 0.60, a significant demographic shift.
Plan Cash Flows
- Aggregate employer contributions have increased over the past 15 years, from $12.7 billion in 2002 to $28.7 billion in 2016. At the same time, disbursements have also increased over the past 15 years, from $22.8 billion in 2002 to $43.3 billion in 2016. Net cash flows have become increasingly negative, with the total shortfall growing from $10.1 billion in 2002 to $14.6 billion in 2016.
- Overall, 28% of plans have a positive cash flow, while the other 72% of plans have a negative cash flow.
Plan Investments
- For the subset of 514 calendar year plans, the median annualized return for the 15-year period from 2002 through 2016 was 5.3%, while the annualized return for the ten-year period from 2007 through 2016 is 4.8%.
- The average asset allocation for multiemployer DB pension plans is 50% to stocks, 21% to corporate bonds, 4% to high-yield bonds, 8% to real estate and 17% to other asset classes.
Plan Funding
- 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 value of assets over the actuarial accrued. The median funded percentage for multiemployer pension plans was 75% on December 31, 2007. The historic investment losses of 2008 brought the median funded percentage down to 68% at December 31, 2008. Due to slightly better than assumed returns in 2016, the median funded percentage increased slightly to 83% at December 31, 2016.
- Following a period of generally positive returns, combined (in some cases) with corrective actions such as increases in contribution rates and reductions in benefits, 62% of plans were in the green zone for the 2016 plan year. The remaining 38% of plans were in endangered, seriously endangered, critical, or critical and declining status.
More About Multiemployer DB Plans
For the sixth 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 (2002-2016), 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:www.ifebp.org/MultiemployerRetirement.
Justin Held, CEBS
Senior Research Analyst at the International Foundation
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