The overall health of multiemployer defined benefit (DB) retirement plans improved from 2020 to 2021. The average multiemployer DB plan net investment return for 2021 was 14.5%, up from 2020 (11.4%), according to The Multiemployer Retirement Plan Landscape: A 15-Year Look (2007-2021) recently released by the International Foundation of Employee Benefit Plans. The median plan investment return assumption has remained at 7.00% since 2020.
Plans in the Study
The report examined Form 5500 data submitted by 1,338 multiemployer DB retirement plans. Of the 1,338 multiemployer plans, 1,186 were ongoing solvent DB plans with total assets of approximately $694 billion, covering approximately 11 million participants and their beneficiaries. The total number of multiemployer DB plans decreased from 1,361 in the 2019 plan year, of which 1,215 were ongoing solvent plans. In 2021, factors such as new plans (ten plans, usually formed from mergers), plan terminations (71 plans) and plans receiving Pension Benefit Guaranty Corporation (PBGC) assistance (71) contributed to changes in the overall count.
Plan Participants
In general, the number of active participants (those working) declined in 2021 (11.09 million) from 2019 (11.11 million), while the number of inactive participants (those not working and include deferred vested employees, retirees and beneficiaries) increased in 2021 (6.99 million) from 2019 (6.82 million). This pattern was seen across all industries, with manufacturing, transportation and retail experiencing the largest median participant ratio of inactive to active participants. The higher ratios from 2019 to 2021 reflect the impact of a smaller workforce, likely as a result of the COVID-19 pandemic and an increase in the number of retirements.
Plan Cash Flows
A plan’s cash flows are very closely tied to its demographics. As retired participants begin to outnumber active participants, benefit payments to those retirees can exceed contributions from employers. In 2020, plan cash flows were down to -2.9%. This could be driven by the impact of the COVID-19 pandemic, which slowed contributions due to fewer employees working and more benefit claims from those unable to work. With favorable asset returns in 2021 and an increase in contributions because of an increase in the labor force, the median net cash flow improved to -2.6% in 2021.
All industries saw an improvement in their cash flow from 2020 to 2021 during the pandemic. Manufacturing and retail/wholesale industries both improved to a better net cash flow than their pre-pandemic numbers, while other industries have yet to recover completely.
Plan Funding
In the wake of the 2008 market collapse, plan trustees took significant actions to improve their plan funding. Thanks to these actions and the favorable stock market, at the end of 2021 the median DB plan funded percentage was 104%. This is a significant improvement over the median funded percentage at the end of 2008, which was 67%.
In 2021, the percentage of DB plans in the green zone increased to 72%, leaving 28% of plans in endangered or critical status. Plans in “critical and declining” status represented about 10% of all DB plans in the study. In the coming years, these plans will be eligible to receive special financial assistance (SFA) from the American Rescue Plan Act of 2021 (ARPA), which funded select troubled multiemployer plans, allowing them to pay benefits until the year 2051. Since multiemployer plan financial assistance payments from ARPA did not start until 2022, this report does not show the Act’s impact.
Plan Costs
As plan trustees developed action plans to improve their plans’ funded statuses, they likely considered the annual normal cost of the plan (benefit payments and operating expenses), future contribution amounts and the plan’s anticipated future investment return. The normal costs increased over the past 15 years, with the median normal plan cost being $2,600 for each active participant in 2007, and by 2021 it had increased to $4,300—an increase of 3.7% per year on average. The median employer contribution per participant increased from $4,900 to $10,300 over the 15-year period, an increase of 5.4% per year on average.
More About Multiemployer Retirement Plans
The Multiemployer Retirement Plan Landscape: A 15-Year Look (2007-2021) is the tenth multiemployer retirement plan benchmarking report produced in partnership with Horizon Actuarial Services, LLC, and the International Foundation of Employee Benefit Plans. The comprehensive report examines data from Form 5500 annual reports filed by multiemployer pension and retirement plans with the U.S. Department of Labor. As required by the Employee Retirement Income Security Act (ERISA) to satisfy annual reporting requirements, Form 5500 collects data on the benefits, funding, investments and operations of employee benefit plans filed by private-sector retirement plans.
