A report from the International Foundation of Employee Benefit Plans (IFEBP) and Horizon Actuarial Services, LLC shows investment returns for multiemployer pension plans over the past decade were unstable due to the economic recession in 2008 and a decrease in the number of actively working participants. Despite these challenges, multiemployer plans remained resilient and have started to improve in recent years, IFEBP says.
The report, “The Multiemployer Retirement Plan Landscape: A Ten-Year Look (2003-2012),” found many plans suffered through significant losses stemming from the recession in 2008. Few plans saw increases in the number of active participants having contributions made on their behalf; the number of active participants decreased for most plans while the number of inactive participants, including those who have retired and are receiving benefits, grew.
As a result, cash outflow outpaced cash inflow for most plans due to these demographic shifts. The ten-year period saw more and more participants retiring and beginning to receive benefits. Growth in benefit payments outpaced increases in contribution rates for most plans, resulting in greater reliance on investment returns to grow or preserve asset values.
The report also found that due to the collapse of the market, the median investment return for multiemployer DB plans for the calendar year 2008 was -23.5%. The median annualized return over the ten-year period from January 1, 2003, through December 31, 2012, was 5.9%. For comparison, the median annualized return over the ten-year period from January 1, 2002, through December 31, 2011, was 4.0%.
According to the report, plan trustees have taken significant action to improve plan funding levels following the market collapse. At the end of 2012, the median funded percentage was 77.8% on a market value of assets basis. This is a significant improvement over the median funded percentage at the end of 2008, which was 67.4%, but still short of the 88.6% median funded percentage at the beginning of 2008.
“Although they are not back at pre-recession levels, multiemployer plans have been resilient,” says Julie Stich, director of research at the IFEBP. “With plan trustees making difficult decisions to improve plan funding, and the market’s improvement over the ten-year period, the majority of multiemployer DB plans are now in a position for continued growth.”
The report also analyzed trends for multiemployer defined contribution (DC) retirement plans over the same period. As with multiemployer DB plans, the market collapse played a significant role in multiemployer DC plans’ stability. The report found few plans saw increases in the number of active participants having contributions made on their behalf, and overall, the number of active participants declined for most plans.
Investment returns over the past decade were very volatile and the median investment return for multiemployer DC plans for the calendar year 2008 was -20.8%. The median annualized return over the ten-year period from January 1, 2003, through December 31, 2012, was 5.4%.
The average account balance for a participant in a multiemployer DC plan is about $30,000. Average balances have grown over the past decade with contributions and investment returns.
The IFEBP report can be downloaded at www.ifebp.org/Multiemployerretirement.