The aggregate funded status of U.S. multiemployer pension plans declined 4 percentage points in the second half of 2015 to an estimated 75%, said a Milliman report released on Tuesday.
Liabilities reached an estimated $612 billion as of Dec. 31, up 1.3% from June 30, while assets declined 3.8% to $461 billion, driving the funded status lower.
Most plans experienced flat or slightly negative investment returns in 2015, far below their expected returns, Milliman estimated.
The most common assumed rate of return was still 7.5%. However, over the past few years, approximately 200 plans have reduced their assumed rates of return, typically by 25 or 50 basis points, contributing to an increase in liabilities, Milliman noted.
“Multiemployer plans continued to be stuck in a rut in 2015,” said Kevin Campe, principal and consulting actuary at Milliman and co-author of the report, in a news release. “Currently, at least 76 plans with $28 billion of shortfall are projected to be insolvent at some point. These plans may be beyond help at this point, and several more may be headed in this direction.”
As of Dec. 31, 192 plans were more than 100% funded with an aggregate surplus of roughly $4 billion, down from 279 plans with an aggregate surplus of roughly $6 billion as of June 30.
Also as of Dec. 31, 264 plans were less than 65% funded, with an aggregate shortfall of $77 billion, accounting for more than half of the $151 billion aggregate shortfall for all multiemployer pension plans, and up from 214 plans as of June 30.
For the funding ratio to remain at 75% at the end of 2016, the pension funds would have to achieve an aggregate 5.5% return in 2016, Milliman estimated. Returns of 11% or more for the year are needed to return to the 79% level seen as of June 30, 2015. A flat return could lower the funding ratio to approximately 72%; a -5% return could drop the funding ratio below 70%. For the first month and a half of 2016, the assessed plans returned roughly -3% in aggregate, Milliman noted.
“We continue to track investment performance and although trustees can be encouraged by investment performance since mid-February, many multiemployer plans still have a long way to go to improve funded status,” Mr. Campe said in an e-mail.
Results were derived from pension funds’ Form 5500 filings; between 1,200 and 1,300 multiemployer pension funds were assessed.