February 9, 2016
By Paul R. Bonsee
Multiemployer plan sponsors, administrators, and fiduciaries will continue to be challenged in 2016 as they have been in recent years. Market volatility, the interest rate environment, labor markets, and regulatory and legislative changes are just some of the headwinds that they face on behalf of their members. However, with challenges come opportunities to stabilize and improve the position of many multiemployer plans.
Below are five key plan issues to watch in 2016. Each one holds out the possibility of a solution to a serious problem or threat. Properly understood, they could bring about positive change and improvement for plans facing declining membership, funding issues, and other pressures.
1. The impact of asset performance during 2015: Markets were especially volatile last year, and are continuing that pattern in early 2016. This should be a signal to trustees to measure the impact of any underperformance on the projected zone status of the plan. Doing so will enable trustees to shift their investment strategies to meet this threat.
2. The continued impact of MPRA 2014: The Multiemployer Pension Reform Act of 2014 (MPRA) allows trustees of certain deeply underfunded defined benefit plans facing solvency issues to reduce benefits for both current and future retirees. As of this writing, two multiemployer plans (Central States Pension Plan and Iron Workers Local 17) have applied to the Treasury Department for permission to do so under the law. All but the most well-funded plans may be interested in monitoring how this plays out in 2016.
3. The PBGC’s need for funds: Further increases in Pension Benefit Guaranty Corporation (PBGC) premiums may be in store in the upcoming years. Some plans may want to consider lump sum payouts to terminated vested members to lower expenses.
4. Plan mergers: Merger activity is picking up. More plans are exploring this option to improve financial outlooks through a combined plan that takes advantage of economies of scale. Proper due diligence in selecting a merger partner is key.
5. Hybrid plan designs: A number of multiemployer plans have changed their designs in recent years to both strengthen long-term viability and improve member benefits across generations. For instance, some plans have implemented variable annuity designs where a member’s benefit moves up or down with the return on plan assets, but where it is still guaranteed that a monthly benefit will be paid for their lifetime.
As we enter 2016, plan trustees and administrators will need to understand all their options to make the best decisions possible for their members.
For more information, please access the link below or contact Paul Bonsee at paul.bonsee@milliman.com.
http://us.milliman.com/Solutions/Products/Multiemployer-Pension-Funding-Study/
