Multiemployer Pension Plans Crawl Back

By Cyril Tuohy
InsuranceNewsNet

For multiemployer pension plans making up lost ground in the wake of a brutal recession, the clouds of the recent past are starting to lift, but have yet to clear.

Even with hot equity markets, which saw the S&P 500 climb 13 percent last year, only 61 percent of multiemployer pension plans are in good fiscal shape, according to a recent survey by Segal Consulting, which looked only at so-called calendar-year defined benefit plans.

While the portion of healthy plans dropped slightly, down 1 percentage point from 2012, the overall condition of the embattled multiemployer sector is on the mend after several shaky years following the financial crisis: the portion of healthy plans is up 5 percentage points from 2011. The Segal survey covers more than 220 calendar-year multiemployer plans by Segal. The combined assets in those plans totals more than $85 billion.

The healthier state of multiemployer pension plans compared to two years ago is encouraging, but the numbers reveal that as many as 39 percent of all multiemployer plans were still on shaky ground or in the red at the end of 2012.

Despite the small decline in the percentage of calendar-year plans in the healthiest category, as many as 97 percent of plans do not anticipate a solvency problem in the next seven years.

"We do see signs that things are starting to turn,” said Philip Romello, senior vice president and co-author of the survey, named the 2013 Zone Status Report.

The survey found that 11 percent of multiemployer plans — the same percentage as last year — were at risk of not meeting their obligations, and 28 percent of the plans were considered insolvent, up 1 percentage point from last year's results.

Five plans (2.2 percent) went from healthy to not healthy while four plans (1.8 percent) improved their status to healthy, the survey found.

Multiemployer plans differ from corporate pension plans in that they are governed by trustees, not individual employers.

The amount of money set aside for the participants of multiemployer plans is contractually negotiated, and the plans are designed for industries with fluid and transitory employer-employee relationships, such as construction, lumber, steel and trucking. Despite the fact that they are not dependent on the economic well-being of the employers that sponsor the plans, many of these pensions still suffered — as did just about all pension funds — in the Great Recession.

The viability of some multiemployer pensions has come under scrutiny over the past year after a series of government-commissioned reports outlined shortfalls of multiemployer pensions systems and the dangers they pose to the government-run and taxpayer-backed Pension Benefit Guaranty Corp.

Only a fraction of multiemployer plans — 148 pensions representing 1.5 million workers out of a total of more than 1,450 multiemployer plans covering 10 million participants — are considered at-risk, according to the National Coordinating Committee for Multiemployer Plans, which represents national, regional and local multiemployer pension and health and welfare plans.

Romello said that the improving status of plans was due to the ability of trustees to make adjustments to them under the Pension Protection Act of 2006. Changes include tweaking the dollar amounts that participants will benefit from in the future, or altering eligibility requirements and how much service a participants needs to earn a particular type of benefit. Trustees are also allowed to take away or adjust subsidies in critical-status plans.

Romello, in an interview with InsuranceNewsNet, said 2012 “wasn’t a year of earthquakes,” and with no big changes, plans are still absorbing the losses of 2008. He said “2012 was neither a tremendously good nor tremendously bad year.”

At the end of last year, the construction industry had the greatest percentage of healthy plans (70 percent), down 3 percentage points from the previous year. Pension plans for employers in the retail trade and food industries had the largest percentage of plans (55 percent) considered insolvent in 2012, up 11 percentage points from the previous year.

The funding status outlook for multiemployer plans remains “challenging,” as employers and unions can’t predict when their industries will return to pre-recession employment levels, according to the survey.

One bright spot noted in the report was the 91 percent of unhealthy plans that reported making progress on remediation schedules mandated by law to get them back into shape. They may get even more help from the stock market. The S&P 500 stock index finished the first half of 2013 up 12.6 percent, its best first half since 1998.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].