Financially stable multiemployer pension funds became more stable between 2009 and 2013, while financially distressed plans got slightly worse, said new research released Thursday by the Society of Actuaries.
The research report, “Multiemployer Plan Stress Metrics,” is based on two key metrics that measure a plan's burden on active plan participants and total annualized plan costs. The research is based on records from the Department of Labor's Form 5500 database as of June 18, 2015. There were 1,307 plans reporting in 2009, and 1,056 plans reporting in 2012. The 2013 data covered 960 plans with more plans yet to report.
One metric, previous benefit cost, measures the annualized cost per current active participant to pay off a plan's unfunded liability over 15 years. The other metric, previous benefit cost factor, compares the annual cost of paying off unfunded liabilities to the cost of funding the current year's benefit accruals.
Both factors are sensitive to investment returns, which can cause additional problems for already stressed plans, wrote authors Lisa A. Schilling and Patrick Wiese. Ms. Schilling is the retirement research actuary with the Society of Actuaries, and Mr. Wiese is lead modeling researcher at the SOA.
Annualized costs of previously accrued benefits account for more than half of annual plan costs, and nearly 85% of multiemployer pension fund participants are in plans where those costs exceed the cost of current benefit accruals and administrative expenses combined. About three-quarters of participants were in plans with stress levels that essentially held steady or worsened between 2009 and 2013, and only about 25% were in plans with stress levels that improved.
Plans in the highest quartile of stress levels tended to experience an increase in stress over the period. The only significant improvements occurred among some of the pension funds already at low stress levels.
When measure on an actuarial basis, using plan actuaries' assumptions and smoothing methods, multiemployer pension plans' aggregate unfunded liability in 2013 was roughly $130 billion, or 77% funded. Measured on a current liability, or market basis, the aggregate unfunded liability was $490 billion, for an aggregate funding ratio of 45%, the report found.
The report will be posted on the SOA's website.