Most MEPs Are in Healthy ‘Green Zone’: Survey

Eighty-seven percent of critical and declining status plans in the Segal survey had inactive participants, compared with 63% for all other plans.

As a result, Segal said, contribution rate increases had limited effect, and these plans were highly dependent on investment income to make benefit payments.

The survey found that since the 2008–2009 financial crisis, the average funded percentage has been relatively stable at between 85% and 89%. Investment returns were a primary driver.

In another finding, the survey showed a plan’s zone status can be fluid. Between 2016 and 2017, 11 calendar-year plans changed zones, with five improving their zone status and six experiencing a decline in zone status.

Gleave said plan trustees were taking action to improve their funded status, including changing plan designs, recommending changes in contribution rates, revising investment policies and, in several cases, seeking relief under the Multiemployer Pension Reform Act.

Trustees of a non-red-zone plan are required to determine whether the plans will be in critical status in the next five years, according to Segal. If so, the trustees can opt to be in critical status in the current year in order immediately to access special rules available to plans in the red zone.

“A plan’s direction is as important as its current zone status,” Segal’s national director of multiemployer consulting David Brenner said in the statement. “Trustees need to be proactive, paying careful attention to cash flow and contribution margins or deficits.

“They should also understand the plan’s vulnerability to all types of risk, including investment and employment risk, so they can take steps to mitigate such risks and are prepared if investment returns or employment levels come in lower than assumed.”