Multiemployer Plan Funding Nears Pre-2008 Levels

By Kristen Ricaurte Knebel

Multiemployer pension plans are achieving steadier footing with a large majority of plans nearing funding levels not seen since before the 2008 market collapse.

These plans are “almost back where they were in 2008,” Kevin Campe, consulting actuary at Milliman, told Bloomberg Law. The stronger funding can be attributed to higher rates of return and increased contributions.

This may come as a surprise for those reading about the troubled state of multiemployer plans like the Central States Southeast and Southwest Areas Pension Fund. The 400,000-member Central States fund attempted in 2016 to gain federal government approval to cut benefits, but the Treasury Department denied the fund’s application.

Over three-quarters of multiemployer pension plans are “just fine and are getting better funded,” although the troubled ones “continue to struggle, including some very well known ones,” like Central States, Stan Goldfarb, an actuary and managing consultant with Horizon Actuarial Services LLC, told Bloomberg Law.

The aggregate funding percentage for multiemployer plans increased to 81 percent as of June 30, compared with 77 percent in December 2016, according to Milliman’s Fall 2017 Multiemployer Pension Funding Study, which was co-authored by Campe. A plan’s funded status is determined by the ratio of assets to liabilities. If a plan has $100,000 in assets and it’s 80 percent funded, it has $80,000 to cover its $100,000 in liabilities.

Rates of return through the first three quarters of 2017 are about 9 to 10 percent, whereas the typical fund may have seen a rate of return around zero in 2015. Another reason for the stronger funding is increased contributions that stem from more hours worked from employees, Goldfarb said.

Deepening Divide

While most plans are doing well, the struggling ones are getting worse. These “mature” plans suffer from having less money coming in and more going out to retirees and beneficiaries.

“They don’t have enough contributions coming in for the active participants to make up for weight of the inactive and retired participants,” Jason Russell, senior vice president and consulting actuary with Segal Group in Washington, told Bloomberrg Law.

These plans could try to cut benefits through the Multiemployer Pension Reform Act of 2014, also known as the Kline-Miller Act, which helps plans projected to run out of money avoid insolvency. But these plans aren’t going that route because it’s a difficult process and can be costly, Russell said.

Only three plans have been approved to cut benefits so far, and other plans that could benefit from relief are hesitant to apply because they are seeing the difficulty plans have getting approval, Russell said.

To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at kknebel@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.