In 2008, 80% of multiemployer DB plans were certified as safe (in the green zone), while only 11% were endangered or seriously endangered (the yellow or orange zone), and 9% were critical (the red zone). For survey respondents who have calculated their plan status in 2009, only 20% remain in the safe zone, and the majority of plans were either endangered or seriously endangered (41%) or critical (38%), according to an IFEBP announcement.
In general, a plan is certified as safe (or in the green zone) if it is at least 80% funded and critical if it’s less than 65% funded. Those plans that fall in between are considered endangered or seriously endangered, IFEBP explained.
“Multiemployer DB plans had seen some improved funding levels in the last couple of years, but the economic meltdown has taken its toll,” said Julie Stich, Senior Information/Research Specialist at the IFEBP, in the announcement. “Unfortunately, more and more plans are facing a critical situation.”
To provide defined beneift plan funding relief, Congress recently passed the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) which offers multiemployer DB plans the option of a one-year funding status freeze (see IRS Issues Guidance on Funding Relief ). The one-year freeze option allows plans certified as safe for the 2008 plan year, but now certified as endangered or critical, to freeze their safe status for the 2009 plan year.
Likewise, plans certified as endangered for 2008 but critical for 2009 may freeze their endangered status.
IFEBP found a large number of multiemployer DB plans intend to take the status freeze option. Of the responding DB plans that have decided whether or not to freeze their plan, the majority (60%) are opting to take the freeze.
According to an IFEBP announcement, of those who had made the decision to freeze their plan, the main reasons include:
- Waiting to see if investment markets will rebound (63%);
- Allowing more time to fix funding on own terms, rather than as dictated by PPA (42%);
- Waiting to see if the federal government will provide additional funding and relief (35%);
- Want additional time to update rehabilitation plan, funding improvement plan or contribution schedules for 2009 (30%); and
- Allowing more time to see what happens with PPA (25%).
Of those who have decided not to freeze their plan, the main reasons include:
- Did not want to delay by one year implementing changes to improve funding status; want to begin fixing the situation now (71%);
- Feel that waiting will only worsen finances and make finding solutions more difficult (29%);
- Collective bargaining agreement(s) will expire soon; need to renegotiate (25%);
- 2008 investment losses were manageable (25%); and
- Want to take advantage of three-year extension for funding improvement/rehabilitation plan (25%).
The survey was conducted during the week of April 13, 2009. Responses were received from 237 IFEBP members in the United States, each representing a separate plan.
The survey is available to Foundation members at no cost. Nonmembers can purchase the survey for $50 by visiting www.ifebp.org/books.asp?6702E or contacting the Foundation Bookstore at firstname.lastname@example.org or (888) 334-3327, option 4.
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