The aggregate funded status of U.S. multiemployer pension plans rose to 81% in 2013, up nine percentage points from the end of 2012, said a new report from Milliman.
Strong investment performance, increased contributions and benefit reductions drove the funding increase, the report concluded. Milliman estimated that assets rose to $473 billion as of Dec. 31, 2013, up 14.3% from the year prior. Meanwhile, liabilities rose 2.5% to $585 billion.
The 2013 aggregate funded status was a “significant improvement” over early 2009, when it was below 70%; however, it has not yet returned to pre-2008 levels, the report found. Prior to the 2008 financial crisis, multiemployer pension plans were more than 85% funded, the report said.
Additionally, the report found that multiemployer plans achieved a median 86% funding ratio in 2013, still three percentage points below the pre-2008 level of 89%. The number of plans that are less than 80% funded also increased to 37% in 2013, up from 29% at the end of 2007.
“Multiemployer plans are improving,” said Kevin Campe, principal and consulting actuary at Milliman and co-author of the report, in a telephone interview. However, “The 2008 financial crisis was a huge hole, a bigger hole than anyone could have imagined. It’s taking (plans) a long time to crawl out of that.”
The report also assessed plan maturity, an important contributor to plan health, Mr. Campe said. “We wanted to look deeper. We know some plans are struggling, and so when we hear that the market is back up … why are plans still struggling to get back to where they want to be?” Mr. Campe said.
The report found that between 2002 and 2012, the overall percentage of active participants in the plans surveyed fell to 37% from 48%.
Plans with fewer active participants have less money available to them via contributions, which puts more pressure on them to achieve better investment returns, Mr. Campe said.
To reach full funded status in the future, more than half of the pension funds surveyed will have to achieve returns of 8% or more per year over the next 10 years, the report said.
Results in Milliman’s report were derived from pension funds’ Form 5500 filings. Between 1,200 and 1,300 multiemployer plans were assessed.