Badly underfunded retirement plans may not recover: Milliman

There's good news, though: as of December 31, most U.S. MEPs are actually much healthier than they were when the market hit its low.

According to its Spring 2019 Multiemployer Pension Funding Study, which analyzes the funded status of all U.S. MEPs, the aggregate funded ratio of MEPs fell from 81 percent to 74 percent between June 30 and December 31, 2018,

In its latest study of multiemployer pension plans, consulting and actuarial firm Milliman, Inc. finds that while the market tumble in 2018 brought losses, nearly a third of MEPs are funded at a rate of more than 90 percent.

However, it also found that plans that are severely underfunded might not be able to pull themselves out of the hole they’re in without some assistance.

According to its Spring 2019 Multiemployer Pension Funding Study, which analyzes the funded status of all U.S. MEPs, the aggregate funded ratio of MEPs fell from 81 percent to 74 percent between June 30 and December 31, 2018, chiefly thanks to poor investment returns.

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In fact, in 2018, estimated average returns for MPFS plans came in at approximately negative 5 percent, when compared to investment return assumptions of 6 to 8 percent. That resulted in asset losses coming in anywhere from 11 to 13 percent below expectations. The overall funding shortfall for these plans rose by $51 billion during the last six months of 2018.

But it’s not all bad news. In spite of double-digit losses, the study also found that, as of December 31, most U.S. MEPs are actually much healthier than they were when the market hit its low in March of 2009. Among the 1,251 plans covering 10.5 million participants covered by the study, close to a third—383 plans—are at least 90 percent funded and another 288 plans are funded between 80–90 percent.

That said, many of the 123 “critical and declining” plans, covering approximately 1.3 million participants, are probably going to go belly up unless Congress intervenes.

“Despite 2018’s investment losses, it appears that the majority of multiemployer plans are positioned to absorb that experience and improve in the future,” said Ladd Preppernau, a principal and consulting actuary at Milliman and coauthor of the MPFS.  “However, for about 10 percent 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.”