Market Collapse and Changing Demographics Played Volatile Role in Number of Participants, Contributions
Brookfield, WI (November 10, 2014) — The International Foundation of Employee Benefit Plans and Horizon Actuarial Services, LLC, released a new report, which found that investment returns for multiemployer defined benefit (DB) pension plans over the past decade were unstable due to the economic recession in 2008 and a decrease in the number of actively working participants. Despite these challenges, DB plans remained resilient and have started to improve in recent years.
"It shouldn't be a surprise to anyone that the economic recession severally impacted the potential of multiemployer defined benefit plans from 2003 through 2012. The biggest market collapse since the Great Depression made for extremely volatile financial markets that have required time to recover," said Jason Russell, FSA, a consulting actuary in Horizon's Washington, D.C. office. "But positive results can be attributed to the decisions made and actions taken by plan trustees to ensure plans get back on track."
The Multiemployer Retirement Plan Landscape: A Ten-Year Look (2003-2012) found that many plans suffered through significant losses stemming from the recession in 2008. Few plans saw increases in the number of active participants having contributions made on their behalf. In fact, the number of active participants decreased for most plans, while the number of inactive participants, including those who have retired and are receiving benefits, grew.
As a result, cash outflow outpaced cash inflow for most plans due to these demographic shifts. The ten-year period saw more and more participants retiring and beginning to receive benefits. Growth in benefit payments outpaced increases in contribution rates for most plans, resulting in greater reliance on investment returns to grow or preserve asset values.
"Demographic changes were less favorable during the ten-year period between 2003 through 2012 as the ratio of active to inactive participants declined," stated Cary Franklin, FSA, a senior consulting actuary and one of the three founding principals of Horizon. "Even now, trends in demographics continue to be a significant challenge for plan sponsors as they work toward strong and reliable funding policies that will also help protect against future market struggles."
The report also found that due to the collapse of the market, the median investment return for multiemployer DB plans for the calendar year 2008 was -23.5%. The median annualized return over the ten-year period from January 1, 2003 through December 31, 2012 was 5.9%. For comparison, the median annualized return over the ten-year period from January 1, 2002 through December 31, 2011 was 4.0%.
Other highlights from the report include:
- Based on the latest available Form 5500 data there were 1,383 multiemployer DB pension plans with asset values greater than zero.
- The 1,383 multiemployer plans have total assets of more than $400 billion, and they cover 10.4 million participants and beneficiaries.
- Plan trustees have taken significant action to improve plan funding levels following the market collapse. At the end of 2012, the median funded percentage was 77.8% on a market value of assets basis. This is a significant improvement over the median funded percentage at the end of 2008, which was 67.4%, but still short of the 88.6% median funded percentage at the beginning of 2008.
"Multiemployer plans serve an important role for workers in a variety of construction, service and retail industries because they provide portable benefits as workers move from employer to employer and project to project within their industry. Although they are not back at pre-recession levels, multiemployer plans have been resilient," said Julie Stich, CEBS, Director of Research at the International Foundation. "With plan trustees making difficult decisions to improve plan funding, and the market's improvement over the ten-year period, the majority of multiemployer DB plans are now in a position for continued growth."
The Multiemployer Retirement Plan Landscape: A Ten-Year Look (2003-2012) also analyzed trends for multiemployer defined contribution (DC) retirement plans over the same period. Based on the latest available Form 5500 data, there were 1,141 multiemployer DC plans with asset values greater than zero.
As with DB plans, the market collapse played a significant role in DC plans' stability. The report found:
- Few plans saw increases in the number of active participants having contributions made on their behalf, and overall, the number of active participants declined for most plans.
- Investment returns over the past decade were very volatile and the median investment return for multiemployer DC plans for the calendar year 2008 was -20.8%. The median annualized return over the ten-year period from January 1, 2003 through December 31, 2012 was 5.4%.
- The average account balance for a participant in a multiemployer DC plan is about $30,000. Average balances have grown over the past decade with contributions and investment returns.
The International Foundation of Employee Benefit Plans and Horizon Actuarial Services, LLC, partnered to build a database of historical information for multiemployer retirement plans in the United States. A database of multiemployer DB plans was originally built in the summer of 2014 to reflect current data. The database of multiemployer DC plans was built in the summer of 2014 as a supplement to the original DB plan database. The reports were created using publicly available information from Form 5500 filings. The reports summarize and analyze key trends in plan demographics, cash flows, investments, funding and costs over the ten-year period from 2003 through 2012.
The Multiemployer Retirement Plan Landscape: A Ten-Year Look (2003-2012) can be downloaded at www.ifebp.org/Multiemployerretirement.
About the International Foundation of Employee Benefit Plans
The International Foundation of Employee Benefit Plans is a member-driven organization with five decades of experience as a leading objective source of employee benefits education and information within the American and Canadian workplace. The Foundation's expertise is industry wide and it offers resources that include training, conferences and research on topics critical to assisting its 35,000 multiemployer, corporate and public sector members respond to trends affecting the well-being of more than 25 million lives in North America. For additional information, visit www.ifebp.org.
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.
Stacy Van Alstyne