February 27, 2014
Stacy Van Alstyne
Plans Remain Resilient Despite a Turbulent Financial Market
Brookfield, Wisconsin— A new report by the International Foundation of Employee Benefit Plans and Horizon Actuarial Services, LLC, reveals that multiemployer defined benefit plans have a strong future as markets improve from the 2008 collapse, and trustees take the necessary steps to ensure that their plans remain viable for the security of their participants. The Multiemployer Defined Benefit Pension Plan Landscape: A Ten-Year Look (2002-2011) provides a first-time ever look at historical trends within all U.S. multiemployer defined pension plans that will help trustees, consultants and policy makers gain a better understanding of these plans and their environment.
The report found that multiemployer defined benefit pension plans remained resilient despite an unstable ten-year period between 2002 and 2011. Due to the volatility of the financial markets, which in 2008 saw the biggest market collapse since the Great Depression, many plans suffered sizable losses. Since that time, however, markets have shown significant recovery and, as a result, the majority of multiemployer defined benefit plans are now more stable.
“Since 2008, we’re seeing the same type of gradual improvement in plans to get back to better funding as we did following the 2001 and 2002 investment losses,” said Jason Russell, FSA a consulting actuary in Horizon’s Washington, D.C. office. “Even with the volatility in investments in the last ten years and the demographic challenges, these plans have improved their overall funding levels, no doubt as a result of difficult decisions made and actions taken by the plan trustees.”
Notable highlights from the report include:
- There were 1,385 multiemployer defined benefit pension plans with asset values greater than zero based on the latest available Form 5500 data (in most cases, this is for plan years ending on or about December 31, 2011).
- These 1,385 multiemployer plans have total assets of $400 billion, and they cover 10.4 million participants and their beneficiaries.
- More than half of multiemployer plans have fewer than 50 participating employers. However, there are some plans with more than 1,000 participating employers.
- Over the ten-year period, few plans saw increases in the number of participants who are actively working and having contributions made on their behalf. Most plans saw decreases in the number of active participants. At the same time, most plans saw increases in the number of participants who are not actively working, including those who have retired and are receiving benefits.
- Plan trustees have taken significant action to improve their plans’ funding levels in the wake of the 2008 market collapse. At the end of 2011, the median funded percentage was 75.1 percent – a significant improvement over the median funded percentage at the end of 2008, which was 67.4 percent – but still short of the 88.7 median funded percentage at the beginning of 2008.
Over the ten-year period, data from the report shows most plans have been resilient, in spite of recent challenges including the shrinking number of actively working participants relative to the number of inactive and retired participants.
“The biggest challenge for these plans is demographic changes. In 2002, many plans had ratios of active participants to inactive participants of close to one to one. As time goes on, the number of inactive and retired participants will increase relative to active participants,” said Russell.
“As this ratio of actives to inactives declines, it puts more pressure on current contribution rates whenever there is an economic downturn,” said Cary Franklin, FSA, a senior consulting actuary and one of the three founding principals of Horizon. “Even as plans recover—and they are recovering well from 2008—it will be a challenge for plan sponsors to develop sound and appropriate funding policies and build cushions into their funding policies so that they can weather another storm, while also addressing the demographic challenge. They need to find a way, while the plans are recovering, to also protect against adverse experience in the future.”
“For decades, multiemployer plans have served a critical role in providing pensions and other employee benefits to workers who otherwise would not be eligible for them,” explained Julie Stich, CEBS, director of research at the International Foundation. “These plans are used by industries that have a mobile workforce, where skilled laborers move from project to project and employer to employer – like the construction, retail, transportation, entertainment, food and hospitality industries. Because of the stability of these plans, workers are able to earn and retain benefits that help them achieve a financially secure life and future.”
The International Foundation of Employee Benefit Plans and Horizon Actuarial Services, LLC, partnered to create The Multiemployer Defined Benefit Pension Plan Landscape: A Ten-Year Look (2002-2011) as a compilation of historical information for multiemployer defined benefit pension plans in all industries in the United States. This report was created during the summer of 2013 using publicly available information from Form 5500 filings. The report summarizes and analyzes key trends in plan demographics, cash flows, investments, funding and costs over the ten-year period from 2002 through 2011. It draws heavily from methodology and analysis in the 2012 report by the Mechanical Contractors Association of America, Inc. and Horizon Actuarial.
The Multiemployer Defined Benefit Pension Plan Landscape: A Ten-Year Look (2002-2011) can be downloaded at
www.ifebp.org/MultiemployerPensionPlans. Horizon Actuarial and the International Foundation are working on a companion report focusing on multiemployer defined contribution pension plans; that report is scheduled to be released later in 2014.
About the International Foundation of Employee Benefit Plans
The International Foundation of Employee Benefit Plans is a nonprofit organization, dedicated to being a leading objective and independent global source of employee benefits and compensation education and information. Total membership includes 33,000 individuals representing multiemployer trust funds, corporations, public employer groups and professional advisory firms throughout the United States and Canada. Each year, the International Foundation offers over 100 educational programs, including conferences and e-learning courses. Membership provides access to personalized research services and daily news delivery. The International Foundation sponsors the Certified Employee Benefit Specialist® (CEBS®) program in conjunction with the Wharton School of the University of Pennsylvania and Dalhousie University in Canada.
About Horizon Actuarial Services, LLC
Horizon Actuarial Services, LLC is a leading consulting firm specializing in providing innovative actuarial solutions to U.S. multiemployer benefit plans. Horizon Actuarial serves roughly 100 pension and welfare benefit plans from various industries, including construction, trucking, hospitality, entertainment, retail food, and communications. Horizon Actuarial helps clients address an extensive range of issues, from pension plan implementation, to health and welfare fund reserve analysis, and everything in between. With Horizon Actuarial’s experience comes an understanding of the unique dynamics of multiemployer plans, keeping both labor and management well informed and well equipped to navigate the challenges facing their plans.