The Survey of Plans’ 2010 Zone Status showed results in line with those reported last April – 53% of plans were certified in the green zone, 18% in the yellow zone, and 29% in the red zone (see Multiemployer Funding Picture Brightening). This is an improvement from 2009, when only 38% of plans were in the green zone, 32% were in the yellow zone, and 30% were in the red zone.
However, Segal warns that the survey indicates that without taking pension funding relief, over the next few years, almost 25% of the plans that were certified in the green zone may migrate into the yellow or red zones. Options in addition to pension funding relief might include benefit changes, trustees recommending higher contribution rates to the bargaining parties, and changes to investment policy, Segal suggests.
“It remains important for trustees to understand their plans’ vulnerability to risks, such as investment risk, employment risk and longevity risk,” the report says.
The report notes that the average Pension Protection Act funded status for the 370 client plans in the survey increased only one percentage point from 2009 to 2010 – to 83%. The significant change in the number of plans in the green zone from 2009 to 2010 is mostly due to improved investment performance.
In June 2010, Congress passed short-term pension funding relief to give trustees of multiemployer plans more time to fund the impact of investment losses. Segal notes that few plans elected the funding relief, perhaps because the Internal Revenue Service did not issue guidance on that relief until late 2010.
The report says the full effect of pension funding relief on plans’ zone status is not likely to be seen until subsequent surveys are conducted.The report can be downloaded from http://www.segalco.com.