Most U.S. multiemployer pension plans are still poorly funded, according to a Moody's Investors Service report released Tuesday. The 124 plans reviewed were collectively underfunded by nearly $318 billion at the end of 2013, an 11% increase compared to $286 billion the prior year, Moody's officials estimate.
Pension obligations have outpaced asset growth, with weak funding levels increasing debt at some participating companies, some of which could face a ratings downgrade in the future, said Moody's officials. Speculative-grade companies without flexibility to meet increased pension funding needs will face the greatest rating pressure, said Wesley Smyth, Moody's senior vice president and senior accounting analyst, in a summary.
The report, “Multiemployer Pension Funding Levels Remain Weak,” found 25%, or $80 billion, of multiemployer plan assets were wiped out in the financial crisis, bringing funding levels just above 50%, forcing assets to work twice as hard to keep up with obligations.
As smaller or weaker companies exit plans altogether, the funding burden on strong companies will increase, and more plan sponsors are expected to restructure their liabilities or withdraw from plans altogether, said Mr. Smyth. “This 'last man standing' scenario suggests that certain investment-grade companies could eventually face substantial funding pressure,” he said in a statement.
The House Ways & Means Subcommittee on Select Revenue Measures will hold a hearing July 28 on possible reforms of the multiemployer pension system, including changes that would allow for alternative plan designs.
