Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. ASSET OWNERS
February 04, 2013 12:00 AM

PBGC multiemployer pension plan reports raise alarms on underfunding

Director Joshua Gotbaum expects the industry will meet the challenges

Hazel Bradford
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Self regulation: Joshua Gotbaum expects the industry itself will meet the challenges

    The Pension Benefit Guaranty Corp. raised alarms about the viability of the multiemployer defined benefit pension system in the U.S. when it sent three long-awaited reports to Congress on Jan. 29.

    Those reports got the immediate attention of key legislators with jurisdiction over pension issues, who are now planning hearings on possible reforms. But multiemployer plan experts are raising the caution flag against a one-size-fits-all solution.

    “(Multiemployer plans) are in all different shapes and sizes. The war (against underfunding) is going to be fought plan by plan,” said Eli Greenblum, senior vice president and actuary with The Segal Co., a multiemployer plan expert.

    PBGC Director Joshua Gotbaum, whose reports came with no recommendations, agreed that the industry itself will meet the challenges. “The history of decision-making with regard to multiemployer pension systems is that it is best done at the initiative of the industry ... figuring out what they thought made sense.”

    Given the combined news in the PBGC reports to Congress, they will have to get busy. Multiemployer plans had a 48% aggregate funding ratio, based on the PBGC's conservative interest rate assumptions. One of the most alarming statistics was the fact that only 39.3% of participants are active workers. Out of roughly 1,500 plans, 21% were in the “red zone” and facing significant, immediate funding problems.

    It wasn't good news for the PBGC either. At current premium levels and economic conditions, the PBGC multiemployer pension insurance program has a 35% probability of being insolvent by 2022, and a 91% chance of insolvency by 2032, according to one of the PBGC reports. While the PBGC expects to collect $1.3 billion in the next decade in total premiums from multiemployer plan sponsors, potential new obligations of $37.6 billion could vastly eclipse that.

    'Look back to ERISA'

    The National Coordinating Committee for Multiemployer Plans, Washington, which represents the plans, will soon unveil an ambitious set of proposals, ranging from minor legal changes to actions for deeply troubled plans to plan design innovations and ways to encourage greater participation. “Our proposal is really meant to be a look back to ERISA, and to get new ideas,” said Josh Shapiro, NCCMP deputy executive director for research and education. “The goal is to evolve.”

    The Pension Protection Act of 2006 dictated that multiemployer plan trustees and their actuaries annually review and certify their funded status. If funding problems arise, they must classify their plan as either endangered, seriously endangered (yellow zone) or critical (red zone) — and take specific corrective action. The zones are determined by funding levels plus a series of other tests. For the critical red zone, the focus is on minimum funding requirements and plan solvency. In general, endangered are less than 80% funded and critical plans are less than 65% funded.

    “In the absence of PPA, things would really be in a mess right now. You can't sit and hope to wait your way out of it,” said Segal's Mr. Greenblum.

    With zone certification rules scheduled to end for plan years beginning after Dec. 31, 2014, Congress isn't going to wait either, said Phil Roe, R-Tenn., who chairs the House Education and the Workforce Subcommittee on Health, Employment, Labor and Pensions. “This affects a lot of people, and it also affects the taxpayers” if more plans default to the PBGC, he said in an interview. “I believe we have a real obligation to these folks. Both sides of the aisle are very committed to it, and we have to do it. We've got to change.”

    According to The Segal Co.'s survey of 230 multiemployer clients with combined assets of $80 billion, 2012 saw a four-percentage-point dip from 2011, with 66% of plans in the healthy green zone, or at least 80% funded. That was significantly better than 2010 and 2009, when only 54% and 39% respectively, were deemed healthy but still not back to the pre-2008 level of 83%. Segal predicts that 13% of the green zone plans slip into yellow zone territory in the next few years. About 21% of the plans in Segal's survey are now funded at 100% or more.

    NCCMP, which calculates funding differently than the PBGC does, estimates that the average multiemployer pension plan is approximately 75% funded currently. “And we believe that recent investment gains point to additional improvement in the funding levels,” Mr. Shapiro added.

    “All things considering, it's been a pretty good three-year run,” agreed John DeMairo, president & CEO of Segal Rogerscasey, New York, noting that multiemployer plans had average returns in 2012 of 10% to 13%. “That is a pretty solid number. You're going to see double-digit returns, and that will continue to help.“

    The more important indicator for multiemployer plans is funded status, he and others say. “You want to do asset allocation in view of how it is impacting the liabilities. If you're not tying it back to the funding level, you're missing half the story,” said Mr. DeMairo. “We're being very mindful of the zone status, and we help move them through the spectrum to fully funded status. They should be dynamic in their investment policy, which means a lot of different things in a lot of different places. “

    Related Articles
    Appellate court: Company can withdraw from multiemployer pension fund
    UPS to leave New England fund, strikes new funding deal
    PBGC reports lead to calls for multiemployer pension reform
    Distressed multiemployer plans show progress, but 'substantial percentage' stil…
    House panel hears multiemployer pension reform ideas
    Groups tackle multiemployer plans' withdrawal liability
    PBGC eases hassle of premium payments
    Union and retiree pressure mounting against multiemployer pension fund reform
    PBGC eyes little-used tool for plan insolvencies
    Recommended for You
    FTX_Screen_i.jpg
    FTX bankruptcy ensnares Kraft, Och and other family offices
    ONLINE_180419851_AR_0_SWJHUISTXOVN.jpg
    Northern Trust plan universe returns -4.2% in Q3
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    The Future of Infrastructure: Building a Better Tomorrow
    Fulcrum Issues: Equity Returns and Inflation — Choose Your Own Adventure
    What Matters Most in Considering a Private Debt Strategy
    Why pursue direct lending in the core middle market?
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing