Milliman today released the results of its Multiemployer Pension Funding Study (MPFS) as of June 30, 2020, which analyzes the funded status of all multiemployer defined benefit pension plans in the United States.
As of June 30, 2020, the aggregate funded percentage of multiemployer plans dropped to 82%, down from 85% at the end of 2019, resulting in a $26 billion increase in the aggregate funding shortfall. The estimated investment return for the first half of 2020 was about -1.3%, based on a simplified portfolio.
In general, over the past 18 months, increased volatility in the markets has caused dramatic swings in the aggregate funded percentage for most plans. While all plans absorb market gains and losses over time, extreme market movements immediately prior to a plan’s measurement date can have a significant impact on its funding position and annual Pension Protection Act (PPA) zone status.
The past six months have demonstrated why measurement dates matter. As of March 31, the estimated year-to-date return on our simplified portfolio was about -13.4%. So the 70 plans in the MPFS with that year-end date will complete their annual valuations and zone certifications when 2020 asset values are at their lowest for the year so far. This will unfortunately affect their funding position and zone status, despite the current market recovery in Q2 2020.
As of December 31, 2019, the aggregate funded percentage of multiemployer plans rose to 85%, up from 74% a year prior, due primarily to double-digit asset returns that exceeded expectations for the year. Overall, multiemployer plan funding levels are now back to where they were in 2007, before the financial crisis, with a greater percentage of plans over 100% funded compared with 12 years ago. However, the picture is much less rosy for troubled multiemployer pensions, with 104 plans now funded below 50%, compared with just 28 in 2007.
While about 130 plans continue on a path toward insolvency, the majority of non-critical plans have improved since 2007 and are at higher funding levels today. In addition to investment performance, many plans are seeing funding levels increase due to benefit and/or contribution adjustments made during the past decade.
Milliman’s most recent MPFS also explores the latest trends in the average discount rate assumption for all plans as well as what may lie ahead for multiemployer plans given potential legislation and unknown investment returns.
Milliman today released the results of its Fall 2019 Multiemployer Pension Funding Study (MPFS), which analyzes the funded status of all multiemployer pension plans in the United States. Between January 1 and June 30 of 2019, the aggregate funded ratio of multiemployer plans rose from 74% to 82% thanks to stellar asset gains for many of these plans. In fact, the estimated investment return for the MPFS was about 13.4% for the first six months of 2019, nearly double many plans’ annual investment return assumptions.
Over the first six months of 2019, the number of multiemployer plans that are 90% funded or better, climbed from 383 to 635—a 66% increase. However, for troubled plans, such as those in critical or critical and declining status, the rebound in funded status is not as pronounced despite the positive investment returns. This is primarily due to their maturity and negative cash flow positions.
The majority of multiemployer pensions had a great start to 2019, with many reaching pre-2008 funding levels. 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.
Milliman today released the results of its Spring 2019 Multiemployer Pension Funding Study (MPFS), which analyzes the funded status of all multiemployer pension plans in the United States. Between June 30, 2018, and December 31, 2018, the aggregate funded ratio of multiemployer plans dropped from 81% to 74% largely due to poor investment returns. In 2018, estimated average returns for MPFS plans were approximately -5% (compared to investment return assumptions of 6% to 8%), resulting in asset losses ranging from 11% to 13% below expectations. The overall funding shortfall for these plans increased by $51 billion during the last six months of 2018.
But despite the double-digit losses, the study found that, as of December 31, 2018, the majority of U.S. multiemployer plans are much healthier than they were at the market’s low point in March 2009. The MPFS includes 1,251 plans covering 10.5 million participants; nearly one-third—or 383 plans—are at least 90% funded and another 288 plans are funded between 80% and 90%. However, there are at least 123 “critical and declining” plans covering roughly 1.3 million participants that are likely headed for insolvency absent Congressional action.
Despite 2018’s investment losses, it appears that the majority of multiemployer plans are positioned to absorb that experience and improve in the future. However, for about 10% of plans, even stellar asset performance is unlikely to right the ship. Most of these plans will need outside help from lawmakers or others in order to prevent insolvency.
Milliman today released the results of its Fall 2018 Multiemployer Pension Funding Study (MPFS), which analyzes the funded status of all multiemployer pension plans in the United States. As of June 30, 2018, the aggregate funded ratio of these plans was at 81%, down from 83% at the end of 2017.
The drop in funded ratio is largely due to lackluster performance by investment returns, which were flat through the first six months of 2018. Milliman’s simplified portfolio earned about 0.2% for the first half of the year, well below the 3% to 4% assumed rate of return for most plans and in stark contrast to the 16% aggregate return experienced in 2017.
We’ve said it before and we’ll say it again: the funded status of multiemployer pensions is primarily driven by investment performance. As Congress explores potential solutions to improve the solvency of these pensions, plans need to continue looking for ways to reduce risk exposure and protect their members in the case of a potential stock market downturn.
As of June 30, 2018, 355 of the plans studied had a funded ratio at or above 100%, while 258 plans had a funded ratio at or under 70%. To view the complete study, click here.
To receive regular updates of Milliman’s pension funding analysis, contact us here.
Milliman today released the results of its Spring 2018 Multiemployer Pension Funding Study (MPFS), which analyzes the funded status of all multiemployer pension plans in the United States. As of December 31, 2017, the plans achieved an aggregate funded ratio of 83%, the highest since the market collapse in 2008; a decade ago, the aggregate funded ratio of all multiemployer plans stood at 85%.
While increases in plan contributions and reductions in benefits factored into these plans’ funding improvement, stellar investment returns were the primary driver of gains for the MPFS plans. The estimated 2017 calendar year investment return for our simplified portfolio was nearly 16%—more than double the assumption of most plans. Critical plans, however, were unable to capitalize on the sturdy investment returns due to the cash flow demands that hit less healthy plans.
While healthier plans benefited from better than assumed investment earnings, critical plans are sinking in quicksand and not able to benefit enough from strong investment returns. It’s been almost 10 years since the global financial crisis, and while healthier plans have gotten their funded status levels back to where they were then, critical plans have not.
Healthy plans have a funded ratio of 93%, compared with 90% a decade ago. Critical plans’ aggregate funded ratio as of year-end is mired at 60%, compared to 76% in 2008. A closer look at critical plans in the “red” or “deep red” zones show the contributions of mature plans (those with fewer active participants) are relatively small compared to the size of the plan’s assets and liabilities. The shortfall for red zone and deep red zone plans is expected to grow unless these plans experience superior asset returns, increased contributions, and/or benefit reductions.
Also, to receive regular updates of Milliman’s pension funding analysis, contact us here.
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