Pensions in Critical Status Fewest in Decade

The number of US multiemployer pension plans in critical status has declined for the sixth straight year, and has fallen to its lowest level since 2008, according to data from the US Department of Labor.

Under federal pension law, if a multiemployer pension plan is determined to be in critical status or endangered status, the plan must provide notice to participants, beneficiaries, the bargaining parties, the Pension Benefit Guaranty Corp. (PBGC), and the Department of Labor.

In 2018, there were 115 multiemployer pension plans that reported to the Department of Labor that they were in critical status, which is less than half of the number that reported that status just six years ago. That is compared to 127 in 2017, 171 in 2016, 175 in 2015, 220 in 2014, 235 in 2013, and 241 in 2012. It was also the lowest number of plans in critical status since 2008, when 102 multiemployer pension plans reported they were in critical status.

Meanwhile, the number of plans in critical and declining status fell by 30% over the past year to 56 from 80 in 2017, and the number of plans in endangered status fell 31% to 59 from 85 in 2017. The number of endangered plans has been cut by more than half since 2014, when 120 plans reported being in that status.

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If a plan is in critical status, adjustable benefits may be reduced and no lump sum distributions in excess of $5,000 can be made. If a critical status plan is also critical and declining, the plan sponsor may file an application with the Secretary of the Treasury requesting a temporary or permanent reduction of benefits to keep the plan from running out of money. Pension plans in critical and endangered status are required to adopt a plan aimed at restoring the financial health of the pension plan.

Under the Pension Protection Act of 2006, a plan is considered in “critical status” if meets one of the following criteria:

Is less than 65% funded and has a projected funding deficiency within five years or an inability to pay benefits within seven years.
Is projected to have a funding deficiency within four years or an inability to pay benefits within five years; or
Has benefits for inactive members that are greater than for active ones, contributions less than carrying costs, and a projected funding deficiency within five years.

A multiemployer plan is considered to be in endangered status if the plan’s actuary determines the plan is less than 80% funded or has an accumulated funding deficiency for a plan year, or is projected to have an accumulated funding deficiency for any of the six succeeding plan years.

And under the Multiemployer Pension Reform Act of 2014, plans are deemed to be in “critical and declining” status if they are within 20 years of projected insolvency, and eligible for approval of a reduction of some benefits.

Tags: Critical Status, Multiemployer Pension Plans, Pension, United States Department of Labor (DOL)

The funded level of the pension funds of the FTSE 100 companies fell 3% as global equity markets tumbled in December to 97% from nearly fully funded at the end of November, according to consulting firm JLT Employee Benefits’ (JLT) monthly index.

The total deficit of the pension plans of the FTSE 100 companies rose to £20 billion as of the end of December from £1 billion at the end of November, as their aggregate assets fell to £646 billion from £647 billion, while their liabilities grew to £666 billion from £648 billion. However, this was still an improvement from the end of 2017, when the funded level for the FTSE 100 pensions was 95%, and the aggregate deficit was £33 billion.

“2018 was a turbulent year for pension schemes but it was not all negative,” Charles Cowling, JLT Employee Benefits’ chief actuary, said in a release. “Markets were initially strong in the face of considerable political uncertainty and signs emerged that interest rates are at last on the way up. That said, there is no sign yet of an unwinding of the Bank of England’s position on quantitative easing.”

Meanwhile the funded level of all UK private sector pension plans fell even further during December, dropping to 93% from 97% at the end of November, as their aggregate deficit more than doubled to £107 billion from £48 billion during the month. However, this was still below the year-ago figure when the total deficit for all UK private sector pensions was £119 billion.

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Cowling said the latest mortality analysis indicates a sustained deceleration in the rate of improving life expectancy, adding that this is “good news” for pension deficits, which have shown improvement over the past year as the aggregate position for FTSE100 pension plans managed to move into surplus territory in 2018 –albeit briefly—for the first time in a decade.

Cowlings also noted that the Bank of England said Brexit uncertainties have “intensified considerably” in recent weeks, and that these are weighing on UK financial markets, with significant falls in UK equities and pressure on the pound.

“All of this gave rise to increases in the outlook for inflation and a lowering of expectations for economic growth,” said Cowling, “yet still resulted in a unanimous vote from the MPC to keep interest rates unchanged and markets are not pricing in a rise in interest rates until the end of 2019. But that could all change.”

Tags: Charles Cowling, Corporate Pension, FTSE 100, JLT Employee Benefits, UK