Over 100 US Multiemployer Pension Plans Face Insolvency

Despite rising funded status trend, many plans will run out of assets within 10 years.

While many US corporate pension plans have enjoyed steadily rising funded levels over the past couple of years, others are still struggling to stay afloat, as 107 multiemployer pension plans are projected to become insolvent over the next 20 years, according to a report from the Society of Actuaries.  

By most accounts, corporate pension plans have been moving toward full funding levels in recent years, and have seen significant improvements in their status since being devastated by the financial crisis 10 years ago.

Consulting firm Milliman reported earlier this month that the aggregate funded ratio of all multiemployer pension plans in the US reached 83%, the highest since 2008.

And Goldman Sachs Asset Management estimates that the funded level of the 50 largest US defined benefit plans in the S&P 500 surged to 85.4% at the end of 2017, from 81.1% at the end of 2016.

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The Society of Actuaries report looked at the pending insolvency on 115 “critical and declining” multiemployer pension plans, their participants, and contributing employers. The plans cover approximately 1.4 million participants, 719,000 of whom are retired and receiving annual benefits totaling more than $7.4 billion. Approximately 11,600 employers contribute to the plans, many of which are at risk of becoming insolvent within fewer than 10 years, according to the report.

The current estimated liability for the 115 plans covered is approximately $98 billion using the minimum funding requirements’ approach. Some $57 billion of that is not funded, for an overall funded ratio of 42%. When using a discount rate of 2.90%, it is $108 billion, according to the report. The discount rate of 2.90% represents a liability-weighted average of Treasury rates in April.

The report forecasts a steady increase in the number of insolvent plans: by 2028, 50 plans are projected to become insolvent, increasing to 91 by 2033, and 107 by 2038. The 21 plans projected to become insolvent by 2023 will cover approximately 95,000 participants at that time, and include 350 contributing employers. The 50 plans projected to become insolvent by 2028 will cover approximately 545,000 participants, with about 2,700 contributing employers.

The 91 plans projected to become insolvent by 2033 are expected to cover approximately 920,000 participants, and about 5,100 contributing employers; and the107 plans that are projected to become insolvent by 2038 will cover roughly 875,000 participants and approximately 11,350 contributing employers.  

Although the number of insolvent plans increases over time, the report found the number of participants in insolvent plans will decline after 2032, at which time deaths among the aging participants are expected to outpace the number of new employees among the ongoing plans.

The report also said that freezing benefit accruals, or closing plans to new entrants or new benefit accruals has little effect on either the timing or financial impact of insolvencies among the plans over the next 10 years.

Additionally, closing a plan to new entrants and freezing accruals “would deny the plan future contributions associated with active participants,” said the report, “which could outweigh the value of their future benefit accruals.”

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