ResearchOctober 31, 2019

Multiemployer Plans Funded Status Rebounds in H1 2019

‘Stellar asset gains’ raise plans’ funded ratio to 82%.

Reported by Michael Katz

The aggregate funded ratio of US multiemployer plans rose to 82% from 74% during the first half of 2019 thanks to “stellar asset gains” for many of these plans, according to consulting firm Milliman. The estimated investment return was 13.4%, which is nearly twice the annual investment return assumption for many plans

“The majority of multiemployer pensions had a great start to 2019, with many reaching pre-2008 funding levels,” Tim Connor, a principal and consulting actuary at Milliman, said in a release. ‘Troubled plans, however, have struggled to rebound fully, and may need to depend on legislation making its way through Congress to help fund their members’ pensions.”

The findings come from Milliman’s Fall 2019 Multiemployer Pension Funding Study, which is an interim update to its annual study published each spring. The study updates the estimated funded status of US multiemployer plans as of June 30, and shows the change in funding levels from Dec. 31, 2018.

The funding shortfall for the plans decreased by approximately $52 billion for the six-month period ending June 30. Milliman’s analysis uses the market value of assets, which it says represents a clearer current financial picture than using smoothed “actuarial” asset values.

The investment returns helped boost the number of plans improving their funded percentages over the six-month period, showing how much a few months of strong market returns can impact a plan’s funded status. There were 635 plans with a funded ratio of 90% as of mid-year, compared with just 383 just six months earlier, which is equal to a 66% increase in the number of plans funded 90% or better.

Meanwhile, the number of plans that were less than 60% funded fell to 155 from 212 over the same six-month period, which is equal to a 27% decrease in the number of plans funded below 60%.

According to Milliman, the robust returns have also allowed most plans to recoup the funded status losses reported in 2018. Noncritical plans are slightly better funded than they were at the end of 2007, prior to the global financial crisis. However, critical plans, and critical and declining plans are not as well funded as they were prior to 2008, said Milliman.

“It is significant to note that, even with the superb asset returns thus far in 2019, critical and declining plans have continued to struggle,” said Milliman. “This struggle is largely due to their significant negative cash flow positions.”

In early August, the Pension Benefit Guaranty Corporation (PBGC) said its multiemployer insurance program is in “dire financial condition,” and will run out of money by the end of fiscal year 2025. Milliman said that if the program runs out of money, it could result in drastic reductions to PBGC benefits paid to participants of insolvent plans.