A strong majority of U.S. multiemployer retirement plans stand in the Pension Protection Act-defined “green zone,” according to Segal Consulting’s new survey of Plans’ Zone Status, meaning their financial outlook is healthy and they stand a good chance of paying out all benefits promised to participants and beneficiaries.

According to Segal Consulting, of the calendar-year plans in the survey, or those with plan years that begin on January 1, two-thirds (66%) are in the green zone. The zone system was established by the Pension Protection Act of 2006 (PPA) and updated/continued by the Multiemployer Pension Reform Act of 2014 (MEPRA), which is part of the federal government’s 2015 omnibus funding bill.

Segal Consutling explains that, following the creation of the zone system, a fairly significant number of multiemployer plans found themselves facing less-than-stellar rankings, a fact that naturally gained serious attention from trade media, concerned pensioners, legislators, etc. Still, research shows troubled plans remain in the minority and that overall, the funding picture is fairly good given where current interest rates and market returns are: “The average Pension Protection Act of 2006 funding percentage of calendar-year plans has remained stable: 87% compared to 88% in 2015.”

“These results are particularly notable given the investment performance last year yielded just a 0.1% median return,” adds Diane Gleave, senior vice president at Segal.

Other key survey findings show eight plans improved from yellow or red zone status to green-zone status due to actions taken to improve their own funding in the last several years. In contrast, five plans moved into the yellow or red zone, with three going from green to yellow and two from yellow to red, the research shows.

“There is a clear correlation between plans in the red zone and the proportion of inactive plan participants,” Segal Consulting finds. “Plans that are in the red zone, and particularly those classified as critical and declining, have a much higher percentage of inactive participants than active participants. For example, for the 20 calendar-year plans in the survey that are in critical and declining status, 89% of participants are inactive.”

Overall, construction and entertainment industries have the highest percentages of plans in the green zone and the lowest percentages of plans in the red zone. More than half of plans in three industry groups are in the red zone: transportation, manufacturing and service.

“Trustees of all plans should monitor industry conditions, employment levels and plan maturity in order to be prepared to respond as plan demographics shift,” Gleave concludes. “When assessing plan risks, they should look at measures beyond the funded percentage such as cash flow, projected credit balance, contribution margins or deficits and potential employer liability.”

Source: Plansponsor.com