Although multi-employer plans experienced generally strong market performance in late 2009 and 2010, overall investment performance was relatively poor in 2011 because of continued market volatility. Consequently, the investment losses of 2008 and early 2009, in conjunction with the lackluster 2011 investment results, had an impact on most plans.
The proportion of calendar-year multi-employer pension plans in the green zone declined by four percentage points between January 1, 2011, and January 1, 2012, from 66% to 62%. The survey shows that the average Pension Protection Act of 2006 (PPA’06) funded percentage for those plans decreased by three percentage points over that period, from 89% to 86%. Before the market downturn that began in late 2008, more than three-quarters of calendar-year plans (83%) were in the green zone and the average funded percentage was 97%.
In the previous year’s survey, only 3% of the plans that were certified as green were projected to migrate into the yellow or red zone. Unfortunately, the plans’ projected zone status has deteriorated somewhat since then. Data from this year’s survey indicates that, over the next few years, 13% of the plans that were certified as green are projected to migrate into the yellow or red zone.
Segal recommends that trustees work with their professional advisers to develop strategies to further improve the funded position of plans, including through:
- Modeling the effect of plan design and/or contribution rate changes on projected zone status, or other measures;
- Conducting cash-flow projections to consider the plan’s future annual liquidity requirements; and
- Having asset-liability projections performed to assess the sensitivity of the plan’s future funding status to future investment return scenarios.
Boards of trustees may want to consider some actions that Segal suggests, including:
- Evaluating their plan’s current and projected financial and actuarial positions;
- Reviewing current investment guidelines, objectives and/or asset allocation;
- For plans that have just entered the yellow or red zone, preparing to formulate Funding Improvement or Rehabilitation Plans, as required by PPA’06;
- For plans already in the yellow or red zone, review and evaluate the viability of Funding Improvement or Rehabilitation Plans;
- Reviewing the plan’s procedures for determining withdrawn employers, the methodology for calculating and assessing withdrawal liability, and for complying with requests from employers; and
- Providing information to participants and all interested parties regarding the funded status of the plan to meet PPA’06 requirements and additional information beyond what PPA’06 requires.
The survey report is available here.