Date: Marc h 2 , 201 7 

T o: Chri s Bone , Director--PRA D 

From: Darre n French , Actuar y 

Subject: ME-PIM S Mas s Withdrawa l Assumption s 

Background 

ME-PIM S wa s initiall y buil t incorporatin g a n assumptio n tha t a primar y drive r o f larg e losse s t o 

PBGC' s multiemploye r progra m wa s du e t o mas s withdrawa l o f al l employer s fro m multiemploye r plans . 

ME-PIM S model s th e chanc e a pla n wil l underg o mas s withdrawa l stochasticall y base d o n si x factors : (a ) 

pla n size ; (b ) rati o o f inactiv e t o activ e population ; (c ) rati o o f asset s t o benefi t payment s an d expenses ; 

( d ) rati o o f th e accumulate d credi t balanc e i n th e fundin g standar d accoun t employe r contributions ; 

( e ) rati o o f marke t valu e o f asset s t o veste d actuaria l liabilities ; an d (f ) rati o o f curren t yea r t o previou s 

yea r contributio n amounts . Th e formul a wa s develope d an d parameter s estimate d base d o n dat a tha t 

largel y pre-date s th e Pensio n Protectio n Act . I n recen t year s th e primar y drive r o f losse s t o th e PBG C 

multiemploye r progra m ha s bee n projecte d rate s o f insolvenc y an d th e sensitivit y o f th e projection s t o 

t h e mas s withdrawa l liabilit y assumptio n ha s bee n relativel y small . Howeve r th e averag e annua l 

projecte d numbe r o f mas s withdrawal s ha s consistentl y overstate d recen t experienc e an d th e Buc k pee r 

revie w recommende d PRA D examin e thi s assumption . Thu s PRAD , vi a contrac t wit h Lynchva l an d it s 

subcontracto r Horizon , requeste d Horizo n revie w th e driver s o f mas s withdrawa l fo r purpose s o f 

eliminatin g o r revisin g th e mas s withdrawa l liabilit y assumption . 

Horizo n gav e result s o f a preliminar y revie w o f mas s withdrawa l driver s i n Novembe r 201 5 

base d o n a stud y o f plan s tha t wer e maintaine d i n PBGC' s inventor y o f mas s withdraw n plan s tha t wer e 

n o t ye t insolven t a s o f Jun e 30 , 2014 . PBG C aske d Horizo n t o follo w u p wit h additiona l dat a tha t 

 eac h o f th e factor s currentl y i n th e mode l i n 2016 . Thi s mem o review s th e tw o 

piece s o f th e Horizo n stud y an d recommend s change s t o ME-PIM S 

Horizon First-Round Survey Observations: 

1 . Horizon' s first-roun d stud y compare d plan s base d o n industry , numbe r o f activ e participants , 

asse t balance , funde d percentage , contribution s pe r activ e participan t an d numbe r o f 

employer s fo r eac h o f th e fiv e pla n year s prio r t o mas s withdrawal . Base d o n m y revie w o f th e 

Horizo n first-roun d study , ther e appea r t o b e severa l factor s somewha t significantl y correlate d 

wit h th e mas s withdrawal s tha t hav e occurre d t o date . woul d th e commo n them e 

appear s t o b e "smal l plans " (whic h i s on e facto r w e currentl y use , i n som e wa y o r another , i n 

o u r curren t estimates) :

a . Smal l numbe r o f contributin g employer s t o th e pla n (not e tha t informatio n o n th e 

numbe r o f contributin g employer s i s a fairl y ne w informatio n ite m o n th e 550 0 ­ thi s 

reportin g requiremen t starte d wit h th e 200 8 550 0 filin g s o th e ratio s tha t ca n b e 

gleane d fro m Horizon' s repor t ar e likel y ver y understated , a s the y di d no t adjus t th e 

ratio s fo r plan s tha t wen t int o mas s withdrawa l prio r t o 200 8 ­ onl y abou t 1/ 4 o f th e 
plan s studie d wen t int o mas s withdrawa l prio r t o bu t Horizon' s denominato r 

include d al l plan s studied) . W e didn' t loo k a t th e year-to-yea r declin e i n suc h number s 

a s a facto r i n th e first-roun d survey , bu t di d i n late r reviews . 

b . Smal l numbe r o f activ e participant s an d rapi d declin e i n activ e populatio n i n th e year s 

precedin g mas s withdrawal . 

c. Lo w asse t value s (yet , surprisingly , lo w funde d ratio s appea r t o b e a relativel y mino r 

factor) . 

d . Greate r tha n typica l asse t decline s i n year s precedin g mas s withdrawal . 

2 . Th e Industr y dat a als o ha d significan t variation s ­ th e plan s i n Constructio n an d Entertainmen t 

h a d b y fa r th e lowes t incidenc e o f mas s withdrawal , an d thos e i n Manufacturin g an d Retai l ha d 

t h e highes t incidenc e rates . 

3 . Pla n siz e i s on e o f th e si x factor s relate d t o mas s withdrawa l w e utiliz e i n th e curren t

model . Th e othe r fiv e factor s w e currentl y mode l a s relate d t o mas s withdrawa l wer e analyze d 

i n th e secon d report . Se e belo w fo r result s an d observations . 

Horizon Second-Round Survey Observations: 

1 . Th e rati o o f activ e participant s t o inactiv e participant s fo r al l multiemploye r plan s tha t reporte d 

informatio n i n 201 2 wa s approximatel y 0.96 . Fo r plan s tha t incurre d mas s withdrawal , th e rati o 

i n th e secon d yea r prio r t o mas s withdrawa l wa s approximatel y 0.35 . Thi s disparit y i n th e activ e 

t o inactiv e rati o i s i n lin e wit h bot h Horizon' s an d m y expectatio n befor e th e analysi s wa s done . 

2 . Th e rati o o f benefi t payment s t o operatin g expense s fo r al l multiemploye r plan s tha t reporte d 

informatio n i n 201 2 wa s approximatel y 20.3 . Fo r plan s tha t incurre d mas s withdrawal , th e rati o 

i n th e secon d yea r prio r t o mas s withdrawa l wa s approximatel y 10.2 . Becaus e Horizo n 

suspecte d tha t muc h o f thi s disparit y i s du e t o plan s tha t ente r mas s withdrawa l bein g smalle r 

a n d havin g highe r relativ e expenses , the y als o compare d th e benefi t t o expens e rati o base d o n 

pla n size , a s measure d b y th e marke t valu e o f assets . Thei r observatio n wa s that , whil e smalle r 

plan s generall y d o hav e lowe r benefi t t o expens e ratios , th e mas s withdraw n plan s hav e lowe r 

ratio s i n ever y siz e category , indicatin g highe r relativ e expenses , whic h i s wha t woul d 

anticipat e fo r a pla n enterin g mas s withdrawal . 

3 . Fo r plan s tha t ente r mas s withdrawal , contribution s decline d 8.6 % o n averag e i n th e fourt h yea r 

prio r t o thei r entr y int o mas s withdrawal . Thi s significan t decreas e i s i n lin e wit h wha t Horizo n 

woul d hav e expected . However , i n th e thre e year s prio r t o mas s withdrawal , contribution s a s 

reporte d o n th e For m 550 0 increase d significantly , b y 8.4% , b y 33.5% , an d b y 10.0% , 

respectively . Whil e man y plan s experience d a declin e i n reporte d contributions , severa l other s 

h a d reporte d contribution s significantl y increase , som e b y a s muc h a s fiv e time s ove r th e prio r 

year , whic h skew s th e average . Whil e Horizo n di d no t anticipat e th e increas e i n contribution s 

f o r som e plans , i t doe s mak e sens e t o the m (an d t o me) , becaus e th e contribution s reporte d o n 

For m 550 0 includ e th e lum p su m settlemen t o f withdrawa l liabilit y paymen t obligation s fro m 

withdraw n employers , whic h woul d b e expecte d t o increas e significantl y prio r t o mas s 

withdrawal . Becaus e ther e i s n o entr y o n For m 550 0 o r an y attachmen t tha t separatel y 

identifie s withdrawa l liabilit y payment s fro m othe r contribution s (excep t possibl y th e audi t 

report) , the y coul d no t identif y ho w muc h o f th e increas e wa s du e t o withdrawa l liabilit y 
payments . However , thes e result s sho w tha t declinin g reporte d contributions , followe d b y a 

shar p increas e i n reporte d contributions , ma y b e a n indicato r o f a loomin g mas s withdrawal . 

4 . Horizo n doe s no t thin k tha t a meaningfu l conclusio n ca n b e draw n base d o n th e numbe r o f 

employers , becaus e 75 % o f th e mas s withdraw n plan s di d no t repor t thi s informatio n o n For m 

550 0 ( I thin k thi s i s becaus e mos t o f the m wen t int o mas s withdrawa l prio r t o whe n tha t 

informatio n wa s require d t o b e reporte d o n th e 5500) . However , se e belo w fo r informatio n 

gleane d fro m 201 4 t o 201 6 mas s withdrawals , base d o n informatio n compile d b y MEPD . 

5 . th e rati o o f th e credi t balance/(fundin g deficiency ) t o employe r contributions , th e 

percentag e o f mas s withdraw n plan s wit h relativel y larg e fundin g deficiencie s (indicate d b y th e 

1 3 o f 4 8 plan s havin g a negativ e ratio ) i s highe r tha n th e percentag e o f al l plan s wit h fundin g 

deficiencie s (indicate d b y th e 11 0 o f 1,18 8 tota l plan s wit h a negativ e ratio) . Thi s indicate s tha t 

ther e i s som e correlatio n betwee n a pla n havin g a fundin g deficienc y an d enterin g mas s 

withdrawal . However , eve n thoug h th e mas s withdraw n plan s ar e mor e likel y t o hav e lo w o r 

negativ e ratios , the y ar e stil l wel l distribute d base d o n thi s metric , indicatin g tha t th e credi t 

balanc e i s no t likel y t o b e a stron g predictiv e variable . Base d o n Horizon' s experience , the y 

believ e tha t th e fundin g standar d accoun t i s rarel y considere d b y multiemploye r stakeholder s 

whe n makin g fundamenta l decision s abou t th e plan , suc h a s whethe r t o withdra w fro m th e 

plan , an d agre e wit h tha t assessment . 

Review of 5500s for Recent Mass Withdrawals 

1 . W e reviewe d th e las t severa l years '550 0 filing s fo r th e plan s o n MEPD' s lis t o f ne w mas s 

withdraw n plan s durin g th e perio d 2014-2016 . MEP D reporte d suc h plans . o f th e 1 6 

wen t int o mas s withdrawa l onl y upo n insolvency , an d anothe r thre e o f th e 1 6 wer e projecte d t o 

g o insolven t withi n 2 t o 4 year s o f goin g int o mas s withdrawal . 

2 . Approximatel y 9 o r s o o f th e 1 6 plan s appea r t o hav e terminate d becaus e al l o f th e formerl y 

contributin g employer s n o longe r ha d a n obligatio n t o contribut e t o th e plan . I t i s difficul t t o 

kno w whethe r (a ) th e contributin g employer s foun d a wa y ou t o f th e pla n (and/o r wen t ou t o f 

business ) o r (b ) th e pla n principal s simpl y determine d tha t i t wa s n o longe r i n th e participants ' 

bes t interes t t o continu e a n activ e plan , an d th e partie s worke d togethe r t o sto p al l ongoin g 

regula r contributions . 

3 . Anothe r thre e s o o f th e 1 6 appea r t o hav e gon e int o mas s withdrawa l a s a resul t o f th e pla n 

trustee s votin g t o terminat e th e plan . 

4 . Thus , i t appear s tha t mor e plan s g o int o mas s withdrawa l prio r t o insolvenc y tha n a t insolvency , 

a t leas t base d o n th e las t thre e year s o f (admittedl y scant ) data . However , th e averag e o f thos e 

situation s wa s approximatel y 4 plan s pe r year , o r abou t 0.4 % o f plan s eac h year . 
Summary and Recommendations 

1 . PP A change d pla n an d employe r incentives . Th e nee d t o terminat e a multiemploye r pla n t o 

avoi d excis e taxe s o n fundin g deficiencies , an d thu s typicall y trigge r a mas s withdrawal , n o 

longe r exist s Thu s plan s tha t no w g o int o mas s withdrawa l likel y hav e somewha t 

differen t reason s an d circumstance s tha n i n th e past . 

2 . not e tha t th e rate s o f mas s withdrawa l tha t w e hav e experience d t o dat e ar e significantl y 

lowe r tha n wha t ou r mode l appear s t o b e projecting . Th e Projection s repor t show s a n annua l 

averag e rat e (ove r th e firs t 1 0 years ) o f 3.1 % pe r year . Thi s rat e i s th e sampl e 

population , whic h trouble d plans , bu t weightin g i t u p t o th e tota l population , w e 

a r e stil l projectin g a n annua l averag e rat e o f 1.8 % an d decline s ove r time . Thi s compare s wit h 

abou t 0.4 % pe r yea r actua l t o dat e o n average . Thus , w e ar e recommendin g scalin g dow n th e 

probabilit y o f mas s withdrawa l tha t result s fro m th e formul a b y 75 % t o b e mor e i n lin e wit h 

post-PP A experience . 

3 . Som e o f th e ne w informatio n w e ar e gleanin g fro m th e lates t analysi s ma y sugges t tha t w e ma y 

b e abl e t o refin e th e formul a tha t assign s probabilitie s t o mas s withdrawa l ­ i n 

particular , ther e appear s t o b e som e fairl y clea r an d possibl y predictiv e relationshi p betwee n 

t h e numbe r o f contributin g employer s an d th e likelihoo d o f pre-insolvenc y mas s withdrawal . 

recommen d w e stud y th e mode l o f mas s withdrawa l an d i n a futur e versio n o f 

PIMS . 

4 . not e tha t PIM S currentl y assume s tha t EVER Y pla n tha t goe s int o insolvenc y goe s int o mas s 

withdrawa l a t tha t poin t (i f i t hasn' t alread y bee n projecte d t o occu r prio r t o insolvency ) whic h i s 

n o t entirel y consisten t wit h pla n informatio n w e ar e gainin g throug h th e partitio n an d 

suspensio n proces s (regardin g pla n assumption s a s t o wha t wil l happe n absen t a 

 W e shoul d continu e t o wor k o n thi s issu e an d potentiall y refin e th e 

analysi s an d model , subjec t t o a determinatio n o f whethe r i t coul d potentiall y materiall y affec t 

t h e projections . 

5 . I t i s probabl y worthwhil e t o revie w recen t mas s withdrawa l an d terminatio n activit y i n insolven t 

plans . M y understandin g i s tha t som e insolven t plan s ar e no t terminatin g (an d thu s no t 

triggerin g mas s withdrawal) , an d als o continuin g accruals . T o date , ther e ar e onl y 6 suc h plans , 

b u t w e kno w tha t severa l mor e anticipat e thi s process . recommen d PBG C undertak e a 

researc h projec t t o bette r understan d thi s activit y an d believ e on e i s currentl y underway . 

Finally , sugges t tha t w e revie w ou r assumption s o n contribution s an d withdrawa l liabilit y payments , 

unde r bot h mas s withdrawa l an d insolvenc y scenarios . a m tol d tha t ME-PIM S assume s 40 % o f th e 

contribution s i n th e yea r prio r t o mas s withdrawa l ar e assume d t o b e pai d indefinitel y int o th e futur e 

a n d doe s no t mode l lum p su m settlement s o f withdrawa l liability . believ e AS D assume s n o ne w 

withdrawa l liabilit y payments , othe r tha n currentl y schedule d withdrawa l liabilit y payment s an d i s 

lookin g a t establishin g "collectability "assumption s tha t var y fo r terminate d an d non-terminate d plans . 

recommen d tha t w e stat e th e curren t PIM S assumptio n i n th e nex t repor t an d continu e t o investigat e 

harmonizin g th e PIM S an d bookin g assumptions , wher e appropriate .