According to recent data from Horizon Actuarial Services, LLC and the International Foundation of Employee Benefit Plans, the fifteen-year period between 2006 and 2020 was turbulent for multiemployer defined benefit (DB) pension plans. Financial markets were volatile, and 2008 saw the biggest market collapse since the Great Depression followed by one of the longest bull runs in American history. However, plan trustees have made difficult decisions to improve plan funding, and financial markets have recovered from the 2008 collapse. This puts the majority of multiemployer DB plans in position for continued improvement in their funded condition.

The Multiemployer Retirement Plan Landscape: A Fifteen-Year Look (2006-2020), is based on the latest available Form 5500 reports filed by 1,353 multiemployer DB pension plans with the U.S. Department of Labor. Here are ten key takeaways from the extensive report on multiemployer defined benefit plans.

Plans in the Study

  • The total number of multiemployer DB plans decreased from 1,428 for the 2006 plan year, decreasing to 1,353 for the 2020 plan year. Conversely, the number of insolvent plans receiving financial assistance from the Pension Benefit Guaranty Corporation (PBGC) generally increased over the 15-year period, reaching 71 plans in 2020.
  • The 1,201 ongoing solvent multiemployer plans have total assets of about $646 billion and cover about 11 million participants and beneficiaries.
  • The median number of plan participants is 1,775, while the average number of plan participants is 9,199.
  • At the employer level, the median number of participating employers is 42, while the average number of participating employers is 159.

Plan Demographics

  • Plans cover both active participants (those working) and inactive participants (those no longer working). One 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 2006 plan year, the ratio of inactive participants to active participants was 1.16. By the end of 2020, the median ratio had increased to 1.62, a significant demographic shift.

Plan Cash Flows

  • Aggregate employer contributions increased over the 15-year period, from $18.4 billion in 2006 to $33.6 billion in 2020. At the same time, disbursements also increased, from $29.6 billion in 2006 to $48.4 billion in 2020.
  • The median net cash flow for multiemployer pension plans has shown modest improvement since the low point in 2009. This improvement is due to increases in contribution rates as well as increases in asset values due to investment gains since 2009.

Plan Investments

  • For the subset of 530 calendar year plans, the median annualized return for the 15-year period from 2006 through 2020 was 6.4%. For comparison, the median annualized return for the 15-year period from 2005 through 2019 was 6.1%. The increase in the annualized return was due to the fact that the median return of 11.5% in 2020 was higher than the prior median return of 5.8% in 2005.

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 accrued liability. The median funded percentage for calendar year multiemployer pension plans was 87% on December 31, 2006. The historic investment losses of 2008 brought the median funded percentage down to 67% on December 31, 2008. Following a historic market recovery, the median funded percentage increased to 96% by December 31, 2020. This is the highest median funded percentage in the 15-year period.
  • Following a period of generally positive returns from 2009 to 2020, combined with corrective actions for some plans, such as increases in contribution rates and reductions in benefits, 68%, of plans were in the green zone for the 2020 plan year. The remaining 32%, were in endangered, seriously endangered, critical, or critical and declining status.

More About Multiemployer DB Plans

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.

Justin Held, CEBS

Associate Director, Research and Education at the International Foundation

Favorite Foundation Service: Foundation Research Surveys

 

Benefits Related Topics That Interest Him Most: Behavioral economics, socially responsible investing, apprenticeship training

 

Personal Insight: Justin loves everything baseball, visiting and checking off ballparks as he travels. In this free time, he enjoys hiking at national parks, cycling and reading about U.S. history.

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