Multi-employer pension plans (MEPPs) in the United States have a strong future, according to a report.
The International Foundation of Employee Benefit Plans and Horizon Actuarial Services report, Multiemployer Defined Benefit Pension Plan Landscape: A Ten-Year Look (2002-2011), reveals that MEPPs will have staying power 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 report also found that plans remained resilient despite an unstable 10-year period between 2002 and 2011. Many plans suffered sizable losses due to market volatility. Since that time, however, markets have shown significant recovery and, as a result, the majority of MEPPs 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,” says Jason Russell, a consulting actuary with Horizon. “Even with the volatility in investments in the last 10 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.”
Highlights from the report include:
- There were 1,385 multiemployer DB pension plans with asset values greater than zero
- These 1,385 multi-employer plans have total assets of $400 billion, and they cover 10.4 million participants and their beneficiaries.
- More than half of multi-employer plans have fewer than 50 participating employers. However, there are some plans with more than 1,000 participating employers.
- Over the 10-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%—a significant improvement over the median funded percentage at the end of 2008, which was 67.4%, but still short of the 88.7 median funded percentage at the beginning of 2008.
Over the 10-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,” Russell explains. “As time goes on, the number of inactive and retired participants will increase relative to active participants.”