Multiemployer Plan Funding Levels Down Sharply in First Half of 2022

The aggregate funded percentage for multiemployer defined benefit plans fell sharply to 80% from 91% during the first half of the year, according to actuarial and consulting firm Milliman, whose analysis estimates that the typical multiemployer investment portfolio lost 12.3% during that time.

Milliman’s mid-year Multiemployer Pension Funding Study says the aggregate market value of the assets of more than 1,200 multiemployer plans fell by $75 billion to $617 billion as of June 30, from $692 billion at the start of the year. And with the accrued benefit liability of those plans increasing by $10 billion during that time to $771 billion, their total funding shortfall more than doubled—to $154 billion from $69 billion in the first half of 2022.

The $85 billion increase in the funding shortfall in the first half slashed 11 percentage points off the aggregate funded ratio for the plans. And, per Milliman, the 12.3% investment loss is actually closer to 16%, because the plans expected to return 3.4% despite this being only half of their average assumed annual return of 6.8% per year.

The study based its estimated investment loss on a simplified portfolio composed of 27.8% U.S. fixed income, 21.9% U.S. stocks, 10.8% global equity, 10.7% international stocks, 10.1% private equity, 9.7% alternative investments, 6.8% real estate equity, 1.2% global or international fixed income and 1.0% cash.

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Despite the sharp drop in funding for most multiemployer plans, the report notes that funding levels remained relatively flat for plans in critical and declining status, thanks to the $6.7 billion paid out in the first half of the year from the Pension Benefit Guaranty Corporation’s Special Financial Assistance Program.

The Milliman study says that without the SFA’s financial aid, the funded percentage for the plans in critical and declining status would have been about 25%. It also says the PBGC estimates the median total SFA payout will be about $82 billion by 2027, and that if all estimated SFA was included in the market value of assets, the aggregate funded percentage would have remained 91% as of June 30.

“The key factor impacting the future funded percentage of critical and declining plans will be the amount of SFA they receive and how that is managed over time,” Nina Lantz, a principal at Milliman and co-author of the study, said in a statement. “The total impact of SFA on multiemployer pensions will depend on a variety of factors including the timing of the SFA payments, potential changes in plan liability measurements, and future investment returns.”