Financial Services

42% of Union Plans do not meet PPA funding requirements
Union Workers Have Better Health Care and Pensions
However a significant number of multiemployer plans do not meet funding requirements. 42%, a significant number of plans, were found to be Under funded.

Union workers are more likely than their nonunion counterparts to receive health care and pension benefits, according to the federal Bureau of Labor Statistics. In March 2006, 80 percent of union workers in the private sector had jobs with employer-provided health insurance, compared with only 49 percent of nonunion workers. Union workers also are more likely to have retirement and short-term disability benefits.

As the chart below illustrates, 80 percent of union workers are covered by pension plans versus 47 percent of nonunion workers. Sixty-eight percent of union workers have defined-benefit pension plans, compared with 14 percent of nonunion workers. (Defined-benefit plans are federally insured and provide a guaranteed monthly pension amount. They are better for workers than defined-contribution plans, in which the benefit amount depends on how well the underlying investments perform.)


UnionWorkersSource: U.S.Bureau of Labor Statistics, Employee Benefits in Private Industry, March 2006. August 2006.

A Significant number of multiemployer plans do not meet PPA funding requirements.

Forty-two percent of multiemployer plans in a recent survey would not meet the funding requirements implemented under the Pension Protection Act of 2006 (PPA; P.L. 109-280) if measured today, according to consultant Segal Company.

Under the new funding rules for multiemployer plans enacted as part of the PPA, multiemployer plan trustees will be required to review the financial projections of their plans at least annually for plan years beginning after 2007.

Generally, under ERISA §305(b), as amended by the PPA, if the required annual review indicates that a plan’s funded percentage for the plan year is less than 80 percent, or that the plan has or will have, during any of the six succeeding plan years, an accumulated funding deficiency, taking into account any extension of amortization periods, then the plan will be considered in “endangered status,” commonly known as the “yellow zone.”

If the review indicates that the funded percentage of the plan is less than 65 percent, and the sum of the fair market value of plan assets plus the present value of the anticipated employer contributions for the current and six succeeding plan years is less than the present value of all benefits projected to be payable under the plan during the current and six succeeding plan years, then the plan will be considered in “critical status,”commonly known as the “red zone.”

Those plans found to be neither endangered nor critical are commonly said to be in the “green zone.”

Significant number of plans found to be under funded
In order to evaluate how plans currently would fare under the new standards, consultant Segal Company surveyed 410 multiemployer pension plans. The survey found that the average funded percentage for the surveyed plans was an estimated 94% as of the end of 2006, and the majority of plans (58%) fell within the green zone. A significant number of plans, however, were endangered or critical: 26% fell within the yellow (endangered) zone, and 16% fell within the red (critical) zone. 

Thus, assuming no corrective actions are taken from the time of the survey in the spring 2007 until the new funding rules go into effect in 2008, the trustees and bargaining parties for 42% of the surveyed plans will be required under the funding rules to take specific actions to improve the plans’ financial status.

Segal cautions that its survey methodology can only estimate plan financial status because actual calculations in 2008 will involve variables not currently known, such as cash flow. Since the survey, Segal notes, some trustees have already made changes likely to improve the balance between contributions and the cost of benefits by, for instance, reducing future benefit accruals.

Other factors which may also improve plan financial status, Segal states, are higher contributions agreed to in recent collective bargaining agreements and increased asset values due to increased market returns in recent years.

More recently investment firms that specialize in pension work offer an investment suitable for plans that is specifically cited by the ERISA which is the use of annuities: fixed and variable contracts, as-well-as Guarantee Insurance Contracts (GIC’s).

With 42% of plans under funded, plans will need every bit of upside the market can give them, so staying invested in the market is necessary which is what a variable annuity contact can offer. Using a variable contract of Fund-of-Fundsgives plans the ability to stay fully invested in both domestic and international equities, over all asset classes. With contract guarantees if used properly, can limit and possibly negate negative returns.

Today more and more plans are looking into these options and specifically the guarantee benefits they offer.

For more information please give us a call at:
P: 916 534-7327

1 866-339-6400 Toll Free

Blonskij Financial Services, Inc.
7840 Madison Avenue
Suite #107
Fair Oaks, CA 95628
Note: Defined-benefit pensions are a subset of all pensions. Disability refers to short-term disability benefits.


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Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, member FINRA/SIPC, to residents of: AL, AZ, CA, CO, IL, NV, OR, UT, WA & WY.  Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor.  Cambridge and Blonskij Financial Services, Inc. are not affiliated. Broker Check.