Multiemployer defined benefit plans hurt by the 2008 financial crisis are recovering as markets improve and trustees make adjustments, according to a new report from the International Foundation of Employee Benefit Plans and Horizon Actuarial Services.
Using the most recent available Form 5500 data for multiemployer plans with assets above zero, the authors took a 10-year look at historical trends from 2002 to 2011 for 1,385 multiemployer plans representing total assets of $400 billion.
Most plans also saw cash outflows exceed inflows as demographics changed and more participants retired, which increased the emphasis on investment returns. During the decade studied, the median annualized return for multiemployer plans was 4%. In 2008, the median return was -23.1%. Still, said principal author Jason Russell, a consulting actuary with Horizon Actuarial Services, “no one should be ringing alarm bells. Ten years is a short time period, and it included 2002 and 2008,” Mr. Russell said in an interview.
The plans started 2008 at an 88.7% median funding level, which dropped to 67.4% by the end of the year. By the end of 2011, the median funding percentage was 75.1%. The percentage of plans in a healthy “green zone” status dictated by the Pension Protection Act of 2006 dropped to 35.5% in 2009, but increased to 59.7% by 2011.
The authors said that plan trustees have taken “significant action” to improve funding levels and will have to continue on that course through a combination of increased contributions, reduced benefits and investment performance. Co-author Julie Stich, director of research for the International Foundation of Employee Benefit Plans, said the group’s members use the information to benchmark their plans against other plans. “In some respects, it verified things we had been hearing. In some industries, like construction, they weathered this particular recession well,” Ms. Stich said.