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

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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

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-$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.

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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

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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.

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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

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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%

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*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

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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

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Pension Stats

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Pension Stats

http://www.soa.org/research/research-projects/pension/default.aspx

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