U.S. multiemployer pension plans were collectively underfunded by $337 billion at the end of 2014, an increase of 5.6% from 2013, Moody’s Investors Service officials estimated in an annual analysis released Wednesday.
A 5% increase in liabilities, outweighed a 4.5% increase in assets in 2014, resulting in a funding ratio of 47%, down from 48% at the end of 2013.
Since the 2008 financial crisis through 2014, liabilities have grown 69.5%, while assets have grown 42.5%, resulting in a 9-percentage-point drop in funded status, Moody’s estimated.
Wesley Smyth, vice president and senior accounting analyst at Moody’s, said in a telephone interview that he expects funding levels will be even lower for 2015, given the year’s “anemic” stock market and fixed-income returns and falling discount rates. From 2008 through 2014, the discount rate has dropped about 145 basis points, according to Moody’s.
While increased employer contributions can help offset poor returns, Mr. Smyth predicted employer contributions, which are determined through collective bargaining with labor unions, did not increase significantly in 2015.
Plan executives contributed $15.1 billion to their pension funds in 2014, relatively unchanged from 2013 and up 23.8% from 2007, according to Moody’s analysis.
Further complicating matters is an aging demographic and the PBGC’s prediction that it could run out of money to insure multiemployer pension benefits in 10 years. Moody’s estimates the number of active multiemployer plan participants is now nearly the same as the number of participants receiving benefits.
Meanwhile, the Pension Benefit Guaranty Corp., which reported $2 billion in assets and $54 billion in liabilities in its MEPP fund as of Sept. 30, estimates there is a greater than 50% chance it will run out of money by 2025 unless premiums increase between 363% and 552%. Also, the Government Accountability Office estimates that if a large and troubled multiemployer plan drained the PBGC, benefits paid by the PBGC would be cut to less than 10% of the guarantee level.
Moody’s acknowledged that some plans have requested government approval to cut benefits to avoid insolvency and, if approved, those cuts would be a credit positive for the employers.
Moody’s analyzed Form 5500 data for 124 multiemployer pension plans, most of which have Dec. 31 fiscal year-end dates.