The estimated aggregate funding ratio of multiemployer defined benefit plans in the U.S. improved to 91% as of Dec. 31, up from 88% at the end of 2020, according to a study from Milliman.
Strong investment returns in 2021 that built on a comparably strong 2020 drove the continuing improvement in the aggregate funding level. At the end of 2019, that funding level was 85%, the highest since before the financial crisis when the funding level reached that level as of Dec. 21, 2007.
According to the study, 55% of plans were at least 100% funded as of Dec. 31, and 80% of plans have funding ratios over 80%.
Milliman estimates that the pension plans' investment return for the year ended Dec. 31 was about 12%.
"Data is just beginning to come in that shows the effect of COVID-19 on multiemployer pensions, though the magnitude of the impact will vary by plan and industry," said Nina Lantz, a principal at Milliman and co-author of the study, in a news release. "We saw a decrease in total contributions for better funded plans — likely because of lower workforce levels — however total contributions for critical plans increased during the pandemic due in part to rehabilitation plan requirements or withdrawal liability income."
Despite the overall improvement, the aggregate funding ratio for the 121 critical and declining plans was only 32%, down from 34% a year earlier and 37% as of Dec. 31, 2019. The level falls far below the funding ratio of 74% measured for those same plans at the end of 2007.
The estimated aggregate funding ratios do not reflect the five plans in critical and declining status that have received $992 million in special financial assistance approved by the Pension Benefit Guaranty Corporation under the American Rescue Plan Act of 2021.
The full impact of the special financial assistance program has yet to emerge, since the application period for most eligible plans will begin on March 11, 2023.
The complete study is available on Milliman's website. It is based on publicly available IRS Form 5500 data filed by more than 1,200 plans.
