Multiemployer Plan Funded Levels Fall Despite American Rescue Plan Aid

Investment losses dragged aggregate funded levels 12 percentage points lower in 2022.

The first wave of Special Financial Assistance funding from the Pension Benefit Guaranty Corp. was not enough to prop up the funded levels of U.S. multiemployer plans, which fell to 79% at the end of 2022 from 91% the previous year, according to actuarial and consulting firm Milliman. The decline was mainly attributed to significant investment losses during the year.

Last year, 35 multiemployer plans received a total of $9 billion in SFA funds under the American Rescue Plan Act of 2021. Another $37 billion was paid out in January alone, most of which went to the Central States, Southeast and Southwest Areas Pension Plan. According to Milliman, if those payouts had occurred in 2022, the aggregate funded percentage for all multiemployer plans would have ended the year at 84%.

Of the 1,211 multiemployer plans tracked by Milliman, 322, or 27%, are fully funded or in surplus, while 834 of the plans (69%) are in the so-called “green zone,” with funded levels of 80% or higher. However, Milliman noted that plans in the “green zone” still face significant risks related to economic volatility and growing plan maturity. Meanwhile, 151 plans (12%) have funded levels below 60% and may be headed toward insolvency.

“The SFA has been vital for multiemployer plans in dire financial condition, however the underlying conditions for these plans have not changed,” Tim Connor, a principal in Milliman and co-author of the firm’s Multiemployer Pension Funding Study, said in a release. “They continue to be very mature, have high negative cash flow, and depend highly upon asset performance. Investment returns will continue to be a driving factor to sustain these plans for the long-term.” [Source]

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Because the PBGC is not able to review all the applications at the same time, the full impact of the financial aid will not be seen for a few years, the Milliman report noted. Although the firm did emphasize that the 3% of plans that were able to receive PBGC funds before the end of 2022 saw a significant improvement in their funded status.

The SFA application period is scheduled to open for all remaining eligible plans on March 11 and will run through 2025. The PBGC estimates it will eventually pay out between $74 billion and $91 billion in assistance to approximately 200 multiemployer plans.

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