In 2016, 69% of multiemployer pension plans received sufficient contributions to maintain or reduce their unfunded liabilities, as measured with funding discount rates, according to the Society of Actuaries. This is down from 78% the year before.
Furthermore, the average plan spends more to fund its unfunded liability than to fund current benefit accruals. The Previous Benefit Cost Ratio (PBCR), which compares the annual cost of paying off unfunded liabilities to the total annual cost of funding the plan, including current year’s benefit accruals, increased from 54% in 2015 to 58% in 2016.
It costs most per current active participant to pay off a plan’s unfunded liability. The Previous Benefit Cost (PBC), which measures the annualized cost per current active participant to pay off a plan’s unfunded liability, increased from $2,119 in 2015 to $3,047 in 2016, primarily due to less-than-expected investment returns.
While very few employers withdraw annually, those who do impact a significant number of plans. Between 2009 and 2015, 1.1% of all participating employers withdrew annually, affecting 17% of the plans, which covered 63% of all participants.
Although some plans are in good financial condition, the multiemployer pension system carries significant unfunded liabilities, the Society of Actuaries says. Aggregate unfunded liabilities increased 14% from $133 billion in 2015 to $151 billion in 2016, the most recent year of complete reporting. Factors affecting unfunded liabilities include contributions, plan changes, assumption changes and/or favorable financials and demographics.
Of the 83% of plans whose contributions were sufficient to reduce unfunded liabilities in 2016, half of them were on pace to eliminate unfunded liabilities in 8.3 years. Eighty percent were funding at a pace to eliminate unfunded liabilities within 16.8 years, and 90% were funding at a pace of 23.4 or fewer years.
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