The overall funding shortfall for all multiemployer plans in the Milliman Multiemployer Pension Funding Study – Fall 2016 analysis declined by about $1 billion for the six-month period ending June 30, 2016, while the aggregate funded percentage increased slightly from 75% to 76%.
The key assumption here is the discount rate used to measure liabilities, with each plan using its actuary’s assumed return on assets assumption. Assumed returns are generally between 6% and 8%, with a weighted average assumption for all plans of just below 7.5%. It is noteworthy that about 200 plans have decreased their assumed rate of return over the last several years, which contributes to an increase in the shortfall.
Since the end of 2013, multiemployer plans have not been able to make additional progress in the wake of less-than-favorable investment returns in 2014, 2015, and the first half of 2016. In general, the funded status of these plans continues to be driven largely by investment performance.
The aggregate funded percentage of critical plans remains less than 60% as of June 30, 2016, while the funded percentage of noncritical plans is in excess of 80%. Since 2015, the estimated funded percentage projection for critical plans has leveled off while the line for the non-critical projection plans has increased slightly.
Since Milliman’s first study as of December 31, 2013, the percentage of plans in critical status has remained consistent at about 25% of all plans. The number of plans that are less than 65% funded showed little change and continues to account for more than half of the aggregate deficit for all multiemployer plans of $150 billion. Starting with 2014 Internal Revenue Service (IRS) Form 5500 filings, new information is provided for critical plans. Milliman reviewed the new statistics for the 320 critical plans in its study for which this information is available. Of these, 40% are projected to become insolvent at some point, while the remainder are projected to emerge from critical status in the future. NEXT: Can multiemployer plans be saved?