Gap Between Rich, Poor Multiemployer Plans Widens

The rich are getting richer, and the poor and getting poorer among multiemployer pension plans, according to a new report from consulting and actuarial firm Milliman, Inc.

The report, which analyzed the funded status of all multiemployer pension plans, found that, the aggregate funded percentage of critical plans at the end of 2016 was less than 60%, while the funded percentage of noncritical plans was nearly 85%.

“The substantially lower asset base of critical plans (in relation to their liabilities) requires much stronger asset returns for these plans to see improvement in their funded percentages,” said the report. “That fact, coupled with severe negative cash flow positions, has proven too difficult for critical plans to realize significant recovery in their funded percentages from their low points after the 2008 crash.”

Milliman found that multiemployer pension plans with severe funding deficiencies only spend $0.38 of each contribution dollar on new benefit accruals, while $0.50 of every dollar goes to pay down funding shortfalls. However, plans that are healthier spend $0.56 per contribution dollar on benefit accruals, and $0.32 on funding shortfalls. The remaining $0.12 in both scenarios is spent on expenses.

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“The gap continues to widen between critical and non-critical plans,” says Kevin Campe, consulting actuary and co-author of the 2017 Multiemployer Pension Funding Study. “While the funding percentage of healthier plans has increased slightly, critical plans have seen no appreciable increase. Persistent strong returns would be needed to see any appreciable improvement in funded status.”

The report also said that plans facing more severe funding challenges are not able to provide as large of a benefit accrual as they once did. In addition, these plans may be contributing much higher amounts than they previously have.

“The multiemployer pension plan universe continues to face significant pressure, with many of the most troubled plans on track to rely on assistance from the PBGC [Pension Benefit Guaranty Corporation], which is currently facing its own dire financial issues,” said the report. “Healthier plans face the risk of increased PBGC premiums, and trustees for these plans need to be vigilant in monitoring financial trends and risk exposure.”

Underfunded plans are currently struggling to pay down shortfalls, said the report, and the shortfalls likely will grow. This means the plans will need unrealistic investment returns, or have a combination of higher contributions and/or lower benefits just to be able to maintain the current levels of funding.

“Healthier plans are improving their funded status as long as asset returns meet or exceed expectations,” said the report. “However, critical plans show declines if expectations are met. For critical plans to see noticeable improvement in their funded status, even more excess returns would be needed.”

The report suggested that plan trustees may want to explore potential plan design changes, such as variable annuity plans, which could mitigate the negative impact of future market volatility.

Tags: Milliman, Multiemployer, PBGC, Pension

United Steelworkers (USW) at steel and mining company ArcelorMittal’s operations in Fermont and Port-Cartier, Quebec, have agreed to a four year collective agreement with the company that includes maintaining and improving the employees’ defined benefit pension plan.

The deal averts a strike, which the 2,000-worker strong union overwhelmingly voted for last week after it rejected a contract offer from the company that required a two-tier pension concession by the employees. However, ArcelorMittal dropped its two-tier pension demand, and a tentative deal was then agreed upon.

Other issues of contention that had separated the two sides included union demands that contracted-out positions be returned as unionized jobs, and the resolution of discrepancies in working conditions and standards between workers at ArcelorMittal’s Mont-Wright mine and its Fire Lake mine.

The agreement includes annual wage increases ranging from 2.2% to 3%, an increase in basic pension benefits, and restrictions on subcontracting that will bring back unionized jobs. Improvements will also be made to health benefit plans, and to non-monetary clauses. Office employees will return to a 40-hour work week, which reversed a reduction in hours last year.

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“It’s an excellent contract,” said Nicolas Lapierre, Steelworkers Area Coordinator for Quebec’s North Shore region in a statement. “Thanks to the mobilization and determination of our members, they have ensured younger workers will benefit from the same pension plan that previous generations fought for and, in fact, they have improved the plan for all current and retired workers.”

The deal also provides ArcelorMittal’s Fire Lake Mine workers with contract parity with their counterparts at the company’s MontWright mine. Previously, the wage gap between workers at the two mines was as high as $8 an hour.

“There are clear improvements and no concessions,” said Lapierre. “This was made possible by very strong mobilizing and solidarity on the workers’ part.”

By Michael Katz

Tags: Canada, Pension, Quebec, steelworkers, strikes