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Financial Stresses in the Multiemployer Pension Plan System
LISA SCHILLING, FSA, EA, FCA, MAAA
March 23, 2016
Chicago Actuarial Association Workshops
Multiemployer Pension Plans: Financial Stress Topics
2
Data source: DOL Form 5500 Schedules MB and R
StressMetrics
Employer Withdrawals
Contribution Index
MEPP Aggregate Liabilities
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
Bill
ion
s
Funded
Unfunded
3
PPA Zone Current Liability
Stress Metrics
Previous Benefit Cost andPrevious Benefit Cost Ratio• Stress of unfunded liability through lens of active
participants:
• Unit Credit, MVA, plan actuaries’ discount rate or uniform discount rate
5
Unfunded Liability Amortized Over 15 YearsNumber of Active Participants
PBC =
Unfunded Liability (min. 0) Amortized Over 15 YearsNC including expenses + Numerator
PBCR =
Stress Metric Distributions: Plan Actuaries’ Discount Rates
6
$0
$5
$10
$15
$20
$25
$30
$35
2009 2010 2011 2012 2013
Thousands
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 2010 2011 2012 2013
PBC PBCR
85th-95th
25th-50th
Median
50th-75th
5th-15th
15th-25th
75th-85th
MEPP … Sensitivity to Asset Returns
7
-$5$0$5
$10$15$20$25$30$35$40$45
4.0% 5.5% 7.0% 8.5% 10.0%
Tho
usa
nd
s
Long-term Asset Returns
PBCSystem-wide 2013
Asset Allocation
Stock
Investment Grade Debt
Other
High Yield Debt
Real Estate
MEPP Stress Metrics 2009–2013
• Annualized cost of unfunded liabilities make up well over half of annualized plan costs
• Stress metrics holding steady for many plans, but:• Highest stress levels were increasing severely
• Lowest stress levels were decreasing slowly
• Sensitive to asset returns• Potential reward of high returns may be welcome, but
• Risk of low returns can bring very high price.
• Assets across the system carry significant risk.
8
Employer Withdrawal Overview
Withdrawal Frequency
10
0
50
100
150
200
250
20
09
20
10
20
11
20
12
20
13
Thousands
Number of Employers
Remaining Employers
Withdrawing Employers
0
200
400
600
800
1,000
1,200
1,400
20
09
20
10
20
11
20
12
20
13
Number of Plans
No Withdrawals
With Withdrawals
0
2
4
6
8
10
12
20
09
20
10
20
11
20
12
20
13
Millions
Number of Participants
In Plans With WD
In Plans Without WD
Withdrawal Liabilities Assessed
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2009 2010 2011 2012 2013
As a % of Total Liabilities for Plans Experiencing Withdrawal
11
85th-95th
75th-85th
25th-75th
Mean
Median
Source: DOL Form 5500 Schedules MB and R
MEPP Withdrawals 2009‒2013
• Fewer than 2% of employers withdrew annually, but 20% of plans were involved, which collectively benefited 60%-70% of MEPP participants.
• For most plans that had withdrawals, the assessed WD liability was less than 2% of total plan liabilities.
• However, for a small number of plans that had WD, it exceeded 10% of liabilities.
12
Contribution Index and Analysis
MEPP Aggregate Contributions
$0
$10
$20
$30
$40
$50
$60
$70
Bill
ion
s
Actual
CPI-U from 2009
MRC
NC
NC + UL interest
NC + 30-yr amort
NC + 15-yr amort
*Roughly 60% of plans reporting by Jan. 5, 2016
Plan Actuaries’ Discount Rates Current Liability Discount Rates
14
MEPP Contribution IndexTread Water
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 2010 2011 2012 2013 2014*
CI: NC + Interest on UL At Plan Actuaries’ Discount Rate
Benchmark is Zero
201%+
151%-200%
101%-150%
76%-100%
51%-75%
< 51%
15
*Roughly 60% of plans reporting by Jan. 5, 2016
MEPP Contribution Index15-Year Funding Plan
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 2010 2011 2012 2013 2014*
CI: NC + 15-yr Amortization of UL At Plan Actuaries’ Discount Rate
Benchmark is Zero
201%+
151%-200%
101%-150%
76%-100%
51%-75%
< 51%
16
*Roughly 60% of plans reporting by Jan. 5, 2016
Contribution per Active
$0
$5
$10
$15
$20
$25
2009 2010 2011 2012 2013 2014* 2009 2010 2011 2012 2013 2014*
Tho
usa
nd
s
Contribution per Active NC per Active
17
85th – 95th
75th – 85th
50th – 75th
Median
25th – 50th
15th – 25th
5th – 15th
Contribution per Active
$0
$5
$10
$15
$20
$25
20
09
20
10
20
11
20
12
20
13
20
14
*
Tho
usa
nd
s
Contribution per Active
18
85th – 95th
75th – 85th
50th – 75th
Median
25th – 50th
15th – 25th
5th – 15th
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
20
09
20
10
20
11
20
12
20
13
Inactives per Active
With WD
No WD
All Plans
MEPP Contributions 2009‒2013
• Aggregate contributions increased faster than inflation
• Overwhelming majority of plans: contributions exceeded Minimum Required Contribution
• Many plans: contributions insufficient to prevent their unfunded liabilities from growing• 46% for 2013 using plan actuaries’ discount rates
• Generally improving trend over 2009‒2013, early 2014
• Shrinking numbers of actives compound challenges
• Many plans anticipate increased future contributions per funding improvement or rehabilitation plans
19
Pension Stats
21
Pension Stats
http://www.soa.org/research/research-projects/pension/default.aspx
22