Multiemployer Pension Funding Study – Midyear 2023
Milliman analysis shows the aggregate funded percentage for multiemployer plans improved in the first half of 2023.
Key findings
- The aggregate market value funded percentage for multiemployer plans is estimated to be 87% as of June 30, 2023, up from 79% at the end of 2022.
- The estimated investment return for our simplified portfolio for the first six months of 2023 was about 6.3%.
- Nearly $50 billion in special financial assistance (SFA) that has been paid through June 30 has increased the aggregate funded percentage by about 6%.
- In total, the Pension Benefit Guaranty Corporation (PBGC) estimates about $80 billion in SFA will be paid to 211 plans.
Current funded percentage
Figure 1 shows that the funding shortfall for all plans fell by about $65 billion for the six-month period ending June 30, 2023, resulting in an increase in the aggregate funded percentage from 79% to 87%.
Figure 1: Aggregate funded percentage (in $ billions)
The amounts in Figure 1 reflect nearly $50 billion of SFA paid to eligible plans by the PBGC as of June 30, 2023. Without this, the aggregate funded percentage would be approximately 81%. Looking ahead, the PBGC estimates the median total SFA payout will be about $80 billion, all of which is expected to be paid by 2027. If all of that estimated SFA was included in the market value of assets as of June 30, 2023, then the aggregate funded percentage would increase from 87% to 92%. However, this estimated impact of SFA does not factor in the variability and timing of the amount and assumes no changes in plan liability measurements. The amounts in Figure 1 will be updated as the SFA payments are reflected in the plans’ reported asset values.
The liabilities in Figure 1 are projected using discount rates equal to each plan’s actuarial assumed return on assets, which generally falls between 6% and 8%. The weighted average assumption for all plans is about 6.7%.
The assets in Figure 1 are based on each plan’s most recently reported market value of assets, projected forward assuming asset returns observed for a diversified portfolio typical for a U.S. multiemployer pension plan. Our simplified portfolio earned about 6.3% in the first six months of 2023.
Historical funded percentage
Figure 2 shows the aggregate historical funded percentage of all multiemployer plans since the end of 2007 by the zone status on the latest Form 5500 used for the study. For example, the green line shows the historical funded percentages of plans currently in the green zone without regard to their previous zone statuses. We separately categorized plans that have received SFA by June 30, 2023. These plans are identified by the gray line. The blue dotted line represents all plans combined.
Figure 2: Aggregate historical funded percentage, by current zone status and SFA
Through June 30, 2023, about 45 plans have received SFA. Most of these plans were insolvent or going insolvent in the near future and were in worse financial condition than other plans eligible for SFA. As expected, their funded status improved substantially after receiving SFA.
Plans that are not in critical and declining (C&D) status in the aggregate have largely recovered from the 2008 global financial crisis and continue to weather the ups and downs of the market.
What lies ahead?
In total, the PBGC estimates that about $80 billion in assistance will be paid to 211 plans. This includes the nearly $50 billion that has already been paid to 45 plans as of June 30, 2023. The application period for all SFA-eligible plans that were not included in priority groups began on March 11, 2023. However, due to the expected volume of applications, the PBGC closed the filing window and implemented a waiting list for plans, along with an optional lock-in application if a plan wanted to lock in the measurement date its SFA would be based on. As of August 1, there were 28 plans in review, 19 plans that withdrew their applications, and 92 plans on the waiting list. The majority of plans on the waiting list have locked in a December 31, 2022, measurement date.
The funded status of most plans will continue to be influenced primarily by investment returns. Plans that receive SFA may have new options going forward that were not feasible prior to receiving SFA. The boosted funded percentage may help them pursue a merger with another plan, and with nearly 30 years of expected solvency ahead of them, these plans could also consider changes in plan design that may improve their chances to extend solvency indefinitely.
About this study
The results in this study were derived from publicly available Internal Revenue Service (IRS) Form 5500 data as of June 2023 for all multiemployer defined benefit plans, numbering between 1,200 and 1,300, depending on the measurement date used. Data for a limited number of plans that clearly were erroneous was modified to ensure the results were reasonable and to provide a sufficiently complete representation of the multiemployer universe.
Liability amounts were based on unit credit accrued liabilities reported on Schedule MB and were adjusted to the relevant measurement dates using standard actuarial approximation techniques. For this purpose, each plan’s monthly cash flow, benefit cost, and actuarial assumptions were assumed to be constant throughout the year and in the future. Projections of asset values to the measurement date reflect the use of constant cash flows and monthly index returns for a simplified portfolio composed of 19.4% U.S. stocks, 9.1% international stocks, 10.5% global equity, 28.1% U.S. fixed income, 0.6% global or international fixed income, 0.9% cash, 10.9% private equity, 9.7% real estate equity, and 10.8% alternative investments. This asset portfolio is the average asset mix as of September 30, 2022, for the top 1,000 union-defined benefit plans, as reported in the February 13, 2023, issue of Pension & Investments.
Significant changes to the data and assumptions could lead to much different results for individual plans but would likely not have a significant impact on the aggregate results or the conclusions in this study.