Although a new survey from The Segal Group shows that COVID-19 had little impact on the overall funded status of multiemployer pension plans, it also says the pandemic “has illustrated the vast differences among multiemployer plans in various industries.”
The survey covers nearly 200 calendar-year plans with more than $125 billion in assets that were required to make a zone status certification by an April 30 filing deadline. Multiemployer plan actuaries must certify the funding status of the plan, or zone certification, by the 90th day of the plan year. The plans in the survey provide benefits to nearly 2.5 million participants and represent approximately 25% of all participants in multiemployer plans.
As part of the annual zone-status certification, plan trustees are required to provide input on their expectations for future industry activity and contribution levels. The survey found that, overall, trustees of most plans had slightly lower expectations for short-term industry activity, but the same or similar expectations over the long term.
The survey showed that more than 40% of calendar-year plans had short-term industry activity assumptions that were lower than in the prior year’s certification. The industry activity assumption is a main indicator of the future financial condition of a multiemployer plan. Segal said the size of the decline ranged from 80% to less than 1%, although the average change in short-term industry activity assumptions was a 4% decline from the previous year.
More than half of the plans in the entertainment, manufacturing and retail, trade, and food industries had lower short-term and long-term assumptions. Those industries had an average decline in the short-term industry assumption of 11% and an average decline in the long-term assumption of 6%. Meanwhile, half of the plans in the service industry had lower short-term assumptions than for the prior year, and they had an average decline of 12%.
Over the longer term, the survey found that the share of plans in the construction, service, and transportation industries that had lower assumptions was relatively equal to the share of plans that had higher assumptions. However, this year’s long-term industry activity assumptions were, on average, lower than the prior year assumptions in every industry except construction.
Segal said most of the multiemployer plans are in the so-called “green zone,” which indicates a funded status of at least 80%, and “continue to project sound funding going forward.” The firm added that other plans, some of which are very large, will likely take advantage of the financial assistance available under the American Rescue Plan Act of 2021 (ARPA).
The average funded percentage for all calendar-year plans increased to 89% in 2021 from 87% in 2020. On average, the percentage of calendar-year plans in the green zone increased to 72% in 2021, up from 70% last year. For plans in critical and declining status, which are projected to become insolvent, the average funded percentage declined to 31% in 2021 from 35% in 2020.
“Though some financially challenged plans remain troubled, the fact that most plans remain solvent—despite 2020’s economic turmoil—demonstrates that the system is inherently sound,” David Brenner, Segal’s national director of multiemployer consulting, said in a statement. “While troubled plans were granted an interim lifeline with new legislation, lawmakers need to develop long-term solutions that meet the needs of participants as well as current and future retirees.”
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Tags: ARPA, COVID-19, David Brenner, Funded Status, green zone, Multiemployer, Multiemployer Pension Plans, Pandemic, Pension, Segal, Segal Zone Status Survey, Survey