Strong Multiemployer Pension Funding Mostly Due to SFA Grants, Asset Performance

Average funding levels for multiemployer pension plans improved by 10 percentage points in a year through 2023, due primarily to grants from the Pension Benefit Guaranty Corporation and improved investment performance, a study from Milliman shows.

Average funding for multiemployer plans stood at 89% at the end of 2023, compared to 79% at the end of 2022. The report estimates that Special Financial Assistance grants awarded by the PBGC made up five percentage points of the 10 points of growth, and asset performance accounted for the remaining five.

Milliman’s data is based on Form 5500 data from the previous year, which is then rolled forward using standard actuarial assumptions.

The aggregate shortfall in funding fell to $87 billion in 2023 from $166 billion in 2022, and the percentage of overfunded plans rose to 37% from 27%.

A total of 69 plans have received $54 billion in grants from the PBGC to cover about 775,000 participants under the Special Financial Assistance program in order to ensure the pension funds’ solvency through 2051. According to Tim Connor, one of the authors of the report, as well as data from the PBGC, 35 received $9 billion grants in 2022 plus $2 billion in 2023 through supplemental filings and another 34 received $43 billion in 2023.

The PBGC median estimate is that 211 plans will require $80 billion in grants under the SFA program. According to the study, 110 plans remain less than 60% funding and many are expected to apply for grants in 2024 and 2025.

The study says that 30 out of 148 plans that are funded at 120% or more have received SFA money. Connor notes however, that this may not reflect unpaid loan and restored benefit liabilities that the grants are intended to cover. Such exclusions would inflate the plan’s estimated funding level.

Connor also explains that that the funding levels of SFA plans in general can be distorted by another factor. Many plans adjusted their actuarial assumptions to be in compliance with the assumptions used by the PBGC in order to obtain SFA. Those assumptions might not yet have been disclosed on available 5500 filings due to the lag in reporting. Upon receiving SFA, they may alter their allocation, especially if they had a more aggressive mix than the PBGC will allow with SFA money. No more than 1/3 of SFA grants can be invested in “return seeking investments.”

Lastly, Connor says that many pension funds that receive SFA grants have large outflows, which is how some became insolvent in the first place. This can “magnify the impacts of investment risk,” Connor says, because “the impact of a large investment loss can be devastating with little time or resources to recover.”