Multiemployer pension plans managed to ride out the economic turbulence of 2020, thanks largely to investment returns, according to a Segal zone status survey released Wednesday.
Segal surveyed nearly 200 calendar-year plans that had to certify their zone status by April 30. Those plans, with a collective $125 billion in assets, represent approximately 25% of all multiemployer plan participants.
The average funded status for all calendar-year plans increased to 89% as of Jan. 1, 2021, up from 87% a year earlier, and the percentage of plans in the healthy green zone increased to 72% from 70%, with 58 plans able to upgrade their zone status. Plans in critical and declining status and projected to become insolvent saw their average funding ratios decline to 31% from 35% in 2020.
"Healthy plans continue to show improvements," said David Brenner, Segal senior vice president and national director of multiemployer consulting, in an interview.
"We saw good improvements because of investment returns, despite a dip in hours (used to calculate contributions) early in the year. That was cause for a tremendous sigh of relief," said Mr. Brenner, who noted that more than 40% of the plans lowered their industry assumptions, which shows a greater boost from investment returns.
The median net return for plans in the survey was 11% in 2020, with half of the plans within a range of 9.1% to 12.7%.
Nick Trella, senior vice president for Segal Marco Advisors, said in an emailed statement that "defined benefit plans have three areas to help improve their funding status: investment strategy, funding policy, and benefit design. With the global pandemic, most plans had to lean on investment results to keep or improve their funding status. Thankfully, the downturn in March 2020 was short-lived and markets rebounded with support from the Fed. This allowed most plans to recover the early 2020 losses and post decent or above actuarial assumption gains in 2020 and into 2021 that pushed plan funding ratios higher."
Mr. Trella said that keeping favorable funded status "requires more than positive returns, it needs to meet or exceed that actuary assumption rate in order to improve. In the second half of 2020 and into 2021, investment returns exceeded expectations and provided some cushion for both struggling and healthy benefit plans alike. And multiemployer plans that came into the pandemic with favorable cash flow were better able to weather the storm of liquidity challenges and experienced greater asset growth when the markets recovered."
