By Justin Held
According to the most recent data from The Multiemployer Retirement Plan Landscape: A Fifteen-Year Look (2004-2018), demographic trends in multiemployer plans have become less favorable as the number of actively working participants have decreased relative to the number of inactive and retired participants. However, plan trustees have made difficult decisions to improve plan funding, and financial markets have recovered somewhat from the 2008 collapse. Due to these actions, the majority of multiemployer defined benefit (DB plans) are in position for continued improvement in their funded condition.
This report is based on the latest available Form 5500 reports filed by 1,367 multiemployer DB pension plans with the U.S. Department of Labor. Here are 10 key takeaways from the extensive report on multiemployer defined benefit plans.
Plans in the Study
- The total number of multiemployer DB plans decreased from 1,420 for the 2004 plan year, decreasing to 1,367 for the 2018 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 70 plans in 2018.
- The 1,229 ongoing solvent multiemployer plans have total assets of about $529 billion and cover about 11.1 million participants and beneficiaries.
- The median number of plan participants is 1,708, while the average number of plan participants is 8,967. At the employer level, the median number of participating employers is 43, while the average number of participating employers is 166.
- 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 2004 plan year, the ratio of inactive participants to active participants was 1.08. By the end of 2018, the median ratio had increased to 1.58, a significant demographic shift. However, this ratio is the lowest since 2012, indicating some improvement in recent years.
Plan Cash Flows
- Aggregate employer contributions increased over the 15-year period, from $14.6 billion in 2004 to $33.3 billion in 2018. At the same time, disbursements also increased, from $25.8 billion in 2004 to $46.1 billion in 2018. Net cash flows, which reflect the comparison of contributions with disbursements, changed from a positive net cash flow of $1.46 billion in 2004 to a slightly negative net cash flow in 2010. Since then, net cash flows have become more positive, reaching a positive net cash flow of $2.57 billion in 2018.
- Overall, 22% of plans have a positive cash flow, while the other 78% of plans have a negative cash flow.
- For the subset of 513 calendar year plans, the median annualized return for the 15-year period from 2004 through 2018 was 5.48%. For comparison, the median annualized return for the 15-year period from 2003 through 2017 was 6.81%. The decrease in the annualized return was due to the fact that the median return of -3.7% in 2018 was lower than the prior median return of 17.0% in 2003.
- The average asset allocation for multiemployer DB pension plans is 51% to stocks, 20% to corporate bonds, 3% to high-yield bonds, 9% to real estate and 17% to other asset classes.
- 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 84% on December 31, 2004 and, despite the 2008 economic crisis, the median funded percentage increased to 89% by December 31, 2017. The lower than assumed investment return from 2017 to 2018 has dropped the median funded percentage down to 81%.
- A period of generally positive returns from 2009 to 2017 combined with corrective actions such as increases in contribution rates and reductions in benefits, led to 66% of plans being in the green zone for the 2018 plan year. The remaining 34% of plans were in endangered, seriously endangered, critical, or critical and declining status.
More About Multiemployer DB Plans
For the eight year in a row, 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.