The aggregate funding ratio of multiemployer defined benefit plans in the U.S. jumped to 88% as of Dec. 31 from 85% at the end of 2019, according to a study from Milliman.
Strong investment returns for the year brought the aggregate funding level to the highest it has been since before the financial crisis, the study found. As of Dec. 31, 2007, the level was 85%.
Nearly half of all the plans in the study are over 100% funded, and about 80% of plans have funding ratios of over 80%.
Milliman estimates that the pension plans' investment return for the year was about 12%, up from an estimated year-to-date return of -1.3% at the end of the second quarter.
While a significant improvement, Milliman notes the aggregate funding ratio reflects the impact of the COVID-19 pandemic solely on investment returns and does not reflect the impact on contribution levels or plan participation levels.
"Some industries, such as entertainment and travel, have been decimated by shutdowns as a result of the pandemic, and this will likely have a cascading effect on the funding of plans in those sectors," says Nina Lantz, a principal at Milliman and co-author of the study, in a news release. "The full picture of COVID-19's impact on multiemployer pensions will become clearer as we learn how plan participation and contributions have changed over the past year."
Despite the overall improvement, the aggregate funding ratio for the 124 critical and declining plans was only 34%, far below the funding ratio of 74% measured for those same plans at the end of 2007.
The complete study is available on Milliman's website.