Sponsors of collectively bargained multiemployer pension plans increasedcontributions to plans between 2009 and 2013.

|

Still, many plans saw their unfunded liability grow during thattime, according to a new report by the Society of Actuaries.

|

The system’s aggregate contributions increases 6.9 percent ayear during the period, more than triple the average inflation rateof 2.1 percent.

|

They also exceeded legally bound minimum required contributions.In 2009, aggregate contributions were 8.75 times required minimums,and 94 percent of all plans infused more cash than they wererequired.

|

Read: Cost of providing pensions increasing forprivate sector

|

About 75 percent of plans were funded well enough to not haveMRCs during the period.

|

Despite investing more than was required, many plans sawunfunded liabilities grow in 2013. Just how many depends on whatdiscount rate is applied to factor future liabilities.

|

One rate, the plan actuary discount rate, is substantiallyhigher than the so-called current liability discount rate, which isbased off the yield on U.S. Treasuries.

|

The higher the discount rate, the lower future projectedliabilities, which of course improves a plan’s funded status.

|

The average plan actuary discount rate during the period was 7.5percent, much higher than current liability discount rate, whichwas as low as 3.74 percent in 2013.

|

The discount rate used by the Pension Benefit Guaranty Corp.to determine funded status zones under the Pension Protection Actof 2006 is higher than average plan actuary discount rate.

|

The three different discount rates create vast differences whencalculating funded status. In 2013, when using PPA’s discount rate,aggregate unfunded liabilities were $115 billion. But when applyingthe current liability discount rate, unfunded liabilities swell to$500 billion.

|

In 2013, 99 percent of plans had an unfunded liability on acurrent liability basis, while there were 84 percent when applyingPPA’s zone determination discount rate.

|

“Funded status results can vary dramatically under differentmeasurement bases,” the report notes.

|

“There is no universally accepted view on the practicalimplications of the different bases,” according to the report.

|

That means a plan can appear to be well-funded when applying theactuary discount rate and poorly funded when applying the currentliability rate, the report said.

|

The increase in unfunded liabilities during the period the SOAstudied is also explained, in part, by a decrease in total activeparticipants in multiemployer plans.

|

Between 2009 and 2013, total active participants declined from3.9 million to 3.6 million. By 2013, only 37 percent ofparticipants in the plans were actively employed.

|

The SOA’s report can be downloaded here.

Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.

  • Critical BenefitsPRO information including cutting edge post-reform success strategies, access to educational webcasts and videos, resources from industry leaders, and informative Newsletters.
  • Exclusive discounts on ALM, BenefitsPRO magazine and BenefitsPRO.com events
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.