Despite the turmoil of the past year and future economic uncertainty, most calendar-year multiemployer pension plans saw little change in their funding levels, according to a survey from human resources (HR) and benefits consulting firm Segal.
The average funded percentage for all calendar-year plans increased to 89% in 2021, up from 87% in 2020. Segal notes that markets rebounded from crashes early in the year. It found that the median net investment return for plans in 2020 was 11%. Half of plans had a 2020 investment return in the range of 9.1% to 12.7%.
The Pension Protection Act of 2006 (PPA) established three categories, or zones, for multiemployer plans: healthy plans are in the “green” zone; endangered plans are in the “yellow” zone and critical plans are in the “red” zone. The Multiemployer Pension Reform Act of 2014 (MPRA) added a “critical and declining” zone, which applies if the plan is in critical status for the current plan year and is projected to become insolvent in the current year or any of the succeeding 14 plan years.
Segal found that, on average, the percentage of calendar-year plans in the green zone increased to 72% in 2021, up from 70% in 2020. However, for plans in critical and declining status in both years, the average funded percentage declined to 31% in 2021, from 35% in 2020.
While zone status varies by industry, in all industries, the majority of plans are in the green zone. The survey shows that the manufacturing and transportation industries have the highest percentage of plans in critical and declining status, with 43% and 29% of plans in that status, respectively. Nearly one-third (31%) of plans in the retail, trade and food industry are in the red zone, or are considered critical.
While COVID-19 had a minimal effect on funded status, it did affect industry activity assumptions. As part of the annual zone-status certification, plan trustees must provide input on their expectations for future industry activity and contribution levels. Overall, trustees of most plans had slightly lower expectations for short-term industry activity, but the same or similar expectations over the long term. But the majority of plans in the entertainment, manufacturing and retail, and trade and food industries reduced both short-term and long-term workforce expectations.
The survey includes nearly 200 calendar-year plans—approximately half of all plans for which Segal is the actuary. As a group, these plans have more than $125 billion in assets, provide benefits to nearly 2.5 million participants and represent approximately 25% of all participants in multiemployer plans.
The survey report, “The Pandemic’s Impact on Multiemployer Pension Plans,” may be downloaded from here.
« 403(b) Plan Sponsor Sued Over Excessive Fees and Underperforming Investments