In light of the Congressional work around this subject, Milliman has put together an infographic that visually explains some of the complexities underlying the multiemployer pension funding problems. The data is taken from Milliman’s Spring 2018 Multiemployer Pension Funding Study, which reports on the estimated funding status of all U.S. multiemployer plans.
Milliman has released the results of its Spring 2017 Multiemployer Pension Funding Study, which analyzes the funded status of all multiemployer pension plans. As of December 31, 2016, these plans have an aggregate funding percentage of 77%, a 1% increase since June 2016. During that six-month period, the market value of assets increased by $17 billion while pension liabilities increased by $13 billion, resulting in a $4 billion decrease in the aggregate funding status shortfall.
But results vary by plan; while noncritical plans experienced an aggregate funding percentage of nearly 85%, the funding level for critical plans is under 60%. The gap continues to widen between critical and noncritical plans. While the funding percentage of healthier plans has increased slightly, critical plans have seen no appreciable increase. Persistent strong returns would be needed to see any appreciable improvement in funded status.
A closer look into how contributions are distributed shows that plans facing severe funding challenges only spend 38 cents of each contribution dollar on new benefit accruals, while 50 cents of every dollar goes to pay down funding shortfalls. Healthier plans spend 56 cents per contribution dollar on benefit accruals and 32 cents on funding shortfalls. The remaining 12 cents in both scenarios is spent on expenses.
This is the first of three pension funding studies Milliman will be releasing this week. To view the complete study, click here. To receive regular updates of Milliman’s pension funding analysis, contact us here.
When participants have been working in their occupations for 20 to 30 years, it is likely they have accumulated sizable account balances. Allowing them to self-direct their accounts during the early to middle years of their careers can have a significant impact in helping them achieve their retirement goals. For those participants who have little interest in choosing their investments or are too busy to pay attention to the benefit, investing their money into a qualified default investment alternative (QDIA), such as a target date fund, allows for an investment strategy that aligns the participant’s retirement date with his or her investment risk (i.e., portfolios shift to a more conservative allocation as the member gets older). A QDIA is a default fund for participants who do not make an election, and as long as certain criteria are met it affords plan trustees fiduciary protection under ERISA §404(c). Moving to self-direction enables additional fiduciary protection for trustees attempting to manage an investment allocation that provides expected returns for the long-term retirement horizon of a 20-year-old participant while mitigating the volatility risk of a 60-year-old participant nearing retirement. These two objectives fall on opposite sides of the investment spectrum and highlight a significant challenge that is extremely difficult to achieve.
As participants approach retirement, an important component of retirement planning is the ability to develop a holistic view of all benefits accrued: defined benefit, defined contribution, Social Security, etc. When a defined contribution plan is not valued daily, the participant is viewing dated information that does not take into account market fluctuations and contributions for the current period. Allowing the plan to be valued daily will enable them to view their account balances or request current information about their accounts. Therefore, the participant will have a better understanding of his or her retirement needs.
In the same regard, bringing increased visibility to the defined contribution plan for apprentices and journeymen allows them to create a strategy for how to invest their accounts. Based on their individual situations, participants can invest their balances more conservatively or more aggressively. There are also professionally managed investment tools and programs that can take into consideration all of the participant’s retirement accounts, such as outside assets, spousal accounts, etc. These tools can assist members with providing investment allocations of their defined contribution plans based on these other benefits.
In this article, Milliman consultant Victor Harte discusses how the firm helped one multiemployer pension fund implement the Milliman Sustainable Income PlanTM (SIP) to address issues that were adversely affecting the fund’s employers and retirees.
Here is an excerpt:
After reviewing numerous alternative plan designs, including shifting to a defined contribution plan, Milliman identified a solution that satisfied the trustees. Specifically, the trustees were looking for a way to:
• Continue to provide lifetime benefits to the members • Eliminate potential withdrawal liability concerns for new employers • Reduce the unfunded liability related to existing employers • Provide retirees with a measure of cost-of-living protection • Maintain the same level of benefits for existing and future participants
Milliman was able to help the trustees meet their goals by changing the plan to a Milliman Sustainable Income PlanTM (SIP) and by modifying the withdrawal liability procedures to make use of the direct attribution method….
…The trustees implemented the required changes for future accruals. The existing benefits are protected and will increase due to future increases in pay. The benefits provided under the new SIP are equal in value to those provided under the prior formula. Additionally, the SIP benefits for future retirees are expected to increase over time and are anticipated to provide some protection against inflation.
One of the larger contributing employers was recently sold as part of a potential bankruptcy. When these types of transactions occurred in the past, the acquiring entity refused to participate in the plan due to concerns about potential withdrawal liability. However, as a result of the plan design changes and the change in the withdrawal liability procedures, the acquiring employer agreed to participate in the plan.
To learn more about the SIP, watch the following video.
Milliman today released the results of its Fall 2016 Multiemployer Pension Funding Study, which analyzes the funded status of all multiemployer pension plans. So far this year, these pension plans experienced a funding percentage increase of 1%, rising from 75% at the end of 2015 to reach 76% as of June 30. Most multiemployer pensions estimated investment returns of over 3%, slightly below expectations. Pension liabilities for these plans increased by $9 billion.
These plans haven’t seen much movement, though it’s worth noting that about half of the total underfunding for multiemployer plans continues to be attributable to plans that are less than 65% funded and have entered critical status. About 40% of these critical plans are projected to be insolvent at some point.
Where do multiemployer plans go from here? In the aggregate, the return for the rest of 2016 needs to be 3% in order to preserve the current 76% funded status. A 9% return for the second half of the year would result in aggregate funding above 80%, while a -3% return would pull it down toward 70%.
Milliman today released the results of its Spring 2016 Multiemployer Pension Funding Study, which analyzes the funded status of all multiemployer pension plans. In the second half of 2015, these pension plans experienced a funding percentage decrease of 4%, declining from 79% at the end of June to 75% at the close of 2015. During that time, pension liabilities for these plans increased by $8 billion and the market value of assets declined by $18 billion, resulting in a $26 billion increase in the funded status shortfall. Since undergoing a minor rally in funded status that peaked in 2013, multiemployer pensions have experienced continued deterioration in funded status.
Multiemployer plans continued to be stuck in a rut in 2015. Currently at least 76 plans with $28 billion of shortfall are projected to be insolvent at some point. These plans may be beyond help at this point, and several more may be headed this direction.
Results vary by plan. Of the plans studied, 192 were over 100% funded at year-end (compared with the 279 plans over 100% funded as of June 30, 2015). The number of plans that are less than 65% funded grew from 214 to 264. The most poorly funded pensions are of particular interest, because plans in “critical and declining status” may reduce benefits in an effort to stay solvent. Currently, 31 of the critical plans that have reported results have stated they are projected to go insolvent before 2025, and this number could rise as more plans file their reports.