According to The Multiemployer Retirement Plan Landscape: A 15-Year Look (2002-2016), the average defined contribution (DC) plan account balance increased significantly from 2002 to 2016, growing to $38,900, while aggregate disbursements also grew. The increase in disbursements—coupled with a lack of growth in the number of active participants having contributions made on their behalf—is likely driven by maturing plan populations, as an increasing number of participants cashed in their accounts upon retirement or termination. In addition, investment returns over this period were volatile and included the biggest collapse in the financial markets since the Great Depression.
This report is based on Form 5500 Annual Reports filed by 1,067 DC multiemployer plans with the U.S. Department of Labor. The report tracks DC plan trends over a 15-year time horizon.
Here are 10 key takeaways from the extensive report on multiemployer defined contribution plans:
Plans in the Study
- The total number of multiemployer DC plans decreased from 1,073 for the 2002 plan year to 1,067 for the 2016 plan year, with some fluctuations year by year. Factors such as the establishment of new plans, mergers and plan terminations contributed to changes in the overall counts over the 15-year period.
- Examined DC plans are divided into three broad types. More than one in three (37.4%) indicated they are money purchase plans, which typically have fixed rather than variable contributions. About three in ten (29.2%) indicated they are profit-sharing plans, followed by 401(k) plans (26.2%). The remaining 7.1% included plans that did not specify a plan type or indicated they are target benefit plans, offset plans or 403(b) plans. An analysis determined that 81.9% of these plans are associated with a defined benefit (DB) plan, while 10.3% are standalone in nature.
- The combined market value of assets of the plans in the study is more than $145 billion, while the median asset value of these plans is $38 million.
- The median number of plan participants is 1,217, and the average number of plan participants is 3,685. The median number of participating employers is 49.
Plan Cash Flows
- Form 5500 figures captured both contributions made by employers and participants and disbursements. Aggregate contributions have varied over the 15-year period. They increased from $4.77 billion in 2002 to $7.31 billion in 2008, decreased to $6.16 billion in 2010 and rebounded to $9.58 billion in 2016. A number of factors may have driven the fluctuations, including changes to wage packages stemming from the economic turmoil at the time.
- Aggregate disbursements, on the other hand, increased steadily over the 15-year period, from $2.52 billion in 2002 to $7.56 billion in 2016.
- In general, net cash flows have shown modest improvement in more recent years. Total net cash flow changed from a positive net cash flow of $2.25 billion in 2002 to a slightly negative net cash flow in 2010. Since then, net cash flows have become more positive, reaching a positive net cash flow of $2.02 billion in 2016.
- The study also compiled year-by-year returns of the identified calendar year plans. The median returns were double-digit positive in five years: 13.9% in 2003, 16.9% in 2009, 10.3% in 2010, 10.2% in 2012 and 14.7% in 2013. However, returns were sharply negative in two years (26.7% in 2002 and 21.0% in 2008) and essentially flat in two years (0.2% in 2011 and 0.0% in 2015).
- The median annualized return for this subset of 412 calendar year plans for the 15-year period from 2002 through 2016 is 4.83%, while the return from 2007 through 2016 is 4.44%.
- Average account balances for multiemployer DC plans increased significantly over the 15-year period, growing with contributions as well as investment returns. As of the end of the 2016 plan year, the average account balance for the median plan in all industries is about $38,900, up from $13,200 in 2002.
More About Multiemployer DC Plans
For the sixth year in a row, Horizon Actuarial Services, LLC, and the International Foundation of Employee Benefit Plans partnered on The Multiemployer Retirement Plan Landscape: A 15-Year Look (2002-2016), an annual benchmarking report on multiemployer pension and retirement plans. For the first time, the report tracks trends over a 15-year time horizon. Trustees can use the report to benchmark their plans and understand how the overall multiemployer system is doing. Members can download the entire report as an e-book by visiting www.ifebp.org/MultiemployerRetirement.
[Related Reading: The Multiemployer Retirement Plan Landscape: 10 DB Plan Takeaways]
Justin Held, CEBS
Senior Research Analyst at the International Foundation
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