Administration

Multiemployer Plans Have Hope and a Future

Doom and gloom headlines are not the whole story about multiemployer plans.

By Rebecca Moore editors@plansponsor.com | May 23, 2017
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We’ve all seen the headlines: The Pension Benefit Guaranty Corporation (PBGC) multiemployer plan program is running out of money because it is helping so many plans, and a number of multiemployer plans have asked the Treasury for permission to reduce benefits under the Multiemployer Pension Reform Act (MPRA).

But, according to Zane Dalal, executive vice president of Benefit Programs Administration (BPA), who is based in Los Angeles, the industry needs to take a balanced view.

First of all, the multiemployer (or Taft-Hartley) plan market is large. Dalal notes that as of 2014, there were 2,671 multiemployer plans—1,403 defined benefit (DB) and 1,268 defined contribution (DC). Taft-Hartley plans not only include a DB plan, but many times also a health plan, and Dalal says, in many cases a DC plan is offered as a supplement to the DB plan, not as a replacement.

In 2014, there were 15,280,000 participants and beneficiaries in multiemployer plans—10,703,000 in DB and 4,577,000 in DC. Also, $703 billion in assets were held by multiemployer plans—$500 billion in DB and $203 billion in DC.

David Brenner, national director of multiemployer consulting with Segal Consulting, who is based in Boston, says the reason there isn't more current information is it comes from Form 5500 data. “By the time we get information, it is 12 to 18 months out of date,” he says.

SVP and actuary Diane Gleave with Segal Consulting, who is based in New York City, says the number of plans can decline because some plans terminate and some plans merge. But, Taft-Hartley plans are not going the way of the dinosaur. “We are seeing some new plans being created in some instances. For example, pieces of plans can be transferred out of a current plan to a new plan, subject to regulatory requirements that have to be satisfied,” she notes.

Brenner adds that new plans are being created in the building and construction industries.

And most plans are doing well. The latest Survey of Plans’ Zone Status from Segal Consulting shows that a majority of multiemployer plans are still in the green zone. The survey found 64% of plans are in the green zone, while the percentage of plans in the yellow zone and red zone remained stable at 11% and 25%, respectively. These numbers are virtually unchanged compared to data for the previous 12-month period.

Gleave says many plans are even thriving, so multiemployer plans’ situation is not as dire as reports indicate, though she concedes there are a significant number of participants in distressed plans.

“The majority of plans we work with are in the yellow or green zone, and funding is improving,” Brenner says. “The boards of trustees for these plans look at the big picture and look at their world and have begun to ask questions about alternatives to what they are doing. The majority of plans out there are stable and well-run and have tremendous futures. They are challenged with the legacy of bad market returns and for the most part are stepping up to deal with it. They are working with investment consultants to see if there are new and different ways to invest; working with actuaries and consultants to think about costs; considering subsidies they provide now whether to reduce them; and whether they should shift from only a DB plan to that plus a companion DC plan.”

NEXT: Multiemployer plan struggles

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