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Survey Finds Almost 75 Percent of Multi-Employer Pension Plans Lack Full Funding

Source: Business Insurance

Posted on 30 Sep 2009

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A survey conducted by the International Foundation of Employee Benefit Plans finds that nearly three-quarters of multi-employer pension plans were less than 80% funded as of last month.

The findings demonstrate the toll that the economic crisis has taken on the plans in the past year, said Julie Stich, senior information/research specialist at the IFEBP in Brookfield, Wis.

“The number of plans reporting an endangered or critical status has almost tripled” in the past year, Stich said in a statement. “These plans must now decide between taking immediate steps to improve their funding or taking the one-year funding status freeze.”

The Pension Protection Act of 2006 requires multiemployer defined benefit plans to certify their funding status each year. A plan is considered “safe” if it is at least 80% funded. Plans less than 65% funded are considered to be “critical.” Plans that fall between the two funding levels are considered to be either “endangered” or “seriously endangered.”

In 2008, 75% of survey respondents reported their plans were “safe,” 14% were “endangered” or “seriously endangered,” and 11% reported being in “critical” status. This year, only 27% reported having a “safe” status, while 36% are “endangered” or “seriously endangered,” and 37% are in “critical” status.

Under the PPA, plans certified as “endangered” must devise a funding improvement plan, and those certified as “critical” must devise a rehabilitation plan. To provide relief for defined benefit plans, the Worker, Retiree and Employer Recovery Act of 2008 provides an alternative option: freezing the funding status temporarily.

Slightly more than half of the 213 plans responding to this year’s IFEBP survey say they are taking advantage of the temporary freeze option.