According to the survey report, the average withdrawal liability funded ratio (ratio of assets to vested benefits) for plans in the 2005 survey was 80%, down from 83% in the 2004 survey. The multiemployer plans had an average ratio of 98% in 2001.
Segal attributes the decline to a decrease in the interest rate used in actuarial calculations of plans liabilities, as well as negative investment performance. The valuation interest rate prescribed by the Pension Benefit Guaranty Corporation (PBGC) for 2001 was 6.1%, and the PBGC-prescribed interest rate declined for each year thereafter, reaching 3.8% in 2004. Additionally, most plans in the survey experienced two years of negative investment performance within the past five years.
An additional factor causing a lower funded ratio is plan benefit increases. The Segal report said 27% of plans in the survey increased benefits in the 2005 survey year, compared to 19% of plans that did so in 2004.
Additional survey findings noted in the report include:
- Only a small portion of surveyed plans were fully funded for their vested benefits – 11% in the 2005 survey, compared to 17% in 2004 and 83% in 2001.
- The withdrawal liability funded ratio declined between the 2004 and 2005 surveys in all industries except entertainment. The ratios for the entertainment, retail trade and food, and manufacturing industries were better than the overall average.
- The average withdrawal liability funded ratios were relatively consistent among plans of all participant sizes – with a spread of only 4 percentage points between plans with the smallest number of participants and plans with the greatest number of participants.
- Ratios were significantly different based on plan asset size. Plans with the least amount of assets (less than $5 million) had the lowest ratio and plans with the greatest asset size ($4 billion or more) had the highest average ratio.
Segal’s 2005 survey includes 404 multiemployer plans for which Segal acts as consultant and actuary. The plans have total assets around $130 million and cover 3.4 million participants.
The study report is here .