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Pension Funds

Critical and declining multiemployer plans need help from Congress, Segal Consulting says

Updated with clarification

Critical and declining multiemployer pension plans are not likely to recover without help from Congress, a study released Tuesday by Segal Consulting concluded.

Critical and declining plans classified as being in the red zone are projected to be insolvent, generally within the next 20 years, putting participants, including retirees, at risk of reduced benefits.

Segal Consulting analyzed red-zone multiemployer plans over the past 10 years, and found that for plans that were in the red zone in 2010, there was a double-digit percentage-point decrease (18 points) in the average market-value funding percentage of plans deemed critical and declining, compared to a double-digit increase (13 points) in funding percentages for other red-zone multiemployer plans that are not in critical and declining status, according to the study.

Over the past 10 years, most red-zone plans have taken corrective actions, increasing the average contribution rate by more than 50%. Some red-zone plans have emerged into the yellow or green zone, while others are recovering, but those termed critical and declining are not recovering, Segal found. Characteristics of those struggling plans include a high retiree and inactive-to-active ratio and a high "burn rate" of assets, without regard to investment income.

Additional assistance from Congress is needed "because the tools and remedies currently available to C&D plans appear insufficient for recovery," said David Brenner, senior vice president and national director of multiemployer consulting for Segal. "That's why the work of the congressional Joint Select Committee on the Solvency of Multiemployer Plans is of the utmost importance."