The aggregate funding status of the nation’s collectively bargained multiemployer pension plans took a $26 billion dollar hit in 2015, resulting in a decline of the aggregate funded status to 75 percent, down from 79 percent in June of 2015, according to Milliman’s most recent analysis.
In the second half of 2015, total liabilities increased $ 8 billion, while the market value of assets dropped $18 billion, due largely to weak returns in equity markets for the year.
The average assumed rate of return on plan assets was 7.5 percent. Of the 1,280 multiemployer plans that Milliman reviewed, about 200 have lowered their assumed rate of return over the past several years.
The 75 percent funded rate is an improvement from the nadir of about 54 percent, suffered in 2008 as the financial crisis sent stocks plummeting. But the most recent funding level is below the 85 percent rate the plans had in 2007.
The number of plans funded less than 65 percent increased during the period, to 264 plans from 214 plans. That group now represents more than 20 percent of the nation’s multiemployer plans, and has an aggregate funding deficit of $77 billion, more than half of the $151 billion deficit for all plans.
Of those critical, or “red zone” plans—the designation given by the Pension Benefits Guaranty Corp. to plans funded below 65 percent—Milliman reviewed recent data available for about half of that group.
Milliman found that 76 plans can expect to eventually go insolvent: 31 plans will be unable to meet pension obligations sometime before 2025; 32 are projected to be insolvent by 2034; and another 13 are expected to go under after that. The total funding shortfall of those plans is $28 billion.
The funding shortfall of plans expected to be insolvent is likely to grow, said Milliman. Excess returns, significant increases in participant and employer contributions, or benefit suspensions available to qualifying plans under the 2014 Multiemployer Pension Reform Act could impact when or if the worst funded plans go under.
Despite the preponderance of headlines detailing the plight of the worst funded collectively bargained plans, many remain in good shape, as 685 plans are funded above 80 percent, down from 794 in June 2015. And 192 plans are funded at more than 100 percent.
The funded status of all plans continues to be driven largely by investment performance, the report says.
For all funds, returns in 2016 need to be 5.5 percent to maintain the current aggregate funded status of 75 percent. Plans would need to enjoy double-digit returns this year to return to a 79 percent funded status.
A hypothetical and typical multiemployer pension portfolio was down 3 percent for the first two months of 2016, though the report notes markets have improved since March.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
