The target rate-of-return assumption is used to project a pension plan’s funded status and assumes it will earn that same rate of return in the future. A rate that is too high and difficult to achieve can understate a plan’s future liabilities over time, can expose it to more risk and can result in a revenue shortfall.
“While the Basic Plan continues to have one of the highest funded percentages in the industry – 92.7% as of January 2017 – this forward-looking change adjusts to new market realities, further strengthening the Plan’s ability to pay future benefits,” board chair Harry Isaacs said.
By contrast, the SAG, AFTRA and WGA pension plans are all funded at about 85%, while the Motion Picture Industry Pension Plan — covering Hollywood members of IATSE, Teamsters Local 399 and the Basic Crafts union — is only funded at 72%. The DGA Plan is the best funded, but all five of the industry’s multi-employer pension plans are in the so-called “Green Zone,” meaning that their funding levels are not critical or endangered and should be able to meet all current and future obligations.
“At the heart of this years-long process is a question we constantly ask ourselves: ‘How can we best plan today to meet tomorrow’s benefits?’” said Jay Roth, co-chair of the plan’s finance committee. “This decision, made through careful research, analysis and consultation, is an important step in meeting that critical objective.”
Roth recently retired as the DGA’s longtime national executive director but remains active with the pension plan.
This is the second time in recent years that the DGA plan’s target rate of return has been lowered. Prior to 2011, its target ROR was 7.5%. At that time, such a return was in the mid- to-low-level range compared with other multiemployer pension plans. The consensus of the plan’s investment consultant and managers was that a 7.5% rate of return would be difficult to achieve in the coming years, so its ROR assumption was reduced to 7.25% in 2011.
The decision to further lower the return assumption to 7.15% comes after the DGA got employers to agree last year to increase pension contributions from 5.5% of covered earnings to 6%.