By: Russ Kamp, Managing DIrector, Ryan ALM, Inc.

Milliman’s midyear 2023 Multiemployer Pension Funding Study has been released. The Headline: “The aggregate market value funded percentage for multiemployer plans is estimated to be 87% as of June 30, 2023, up from 79% at the end of 2022.” Most importantly, roughly 6% of that increase is attributable to the Special Financial Assistance (SFA) that has been doled out to more than 50 plans through the ARPA legislation that is being overseen and implemented by the PBGC.

This is outstanding news, as the program is doing exactly what it was intended to do – protect and preserve the promised benefits for the many hard-working American workers that would have seen their benefits put at risk if this legislation hadn’t passed. Milliman anticipates that there will ultimately be about $80 billion in SFA allocated to more than 200 eligible multiemployer plans. As you may recall, initial forecasts on the cost of this legislation were in the $90 billion range.

Milliman also estimated in this midyear report that the funded status would improve to about 92% if the remaining SFA were to be included in today’s numbers. Obviously, market forces will impact these funds prior to the completion of the SFA application process which should wrap up by 2027. Given the significant importance of this allocation to what were fund’s on life support, we encourage recipients of this government grant to treat it with the utmost care.

Equity valuations appear to be stretched at this time, while the rapidly changing US interest rate environment is providing plan sponsors with a wonderful opportunity to SECURE the promised benefits through a cash flow matching strategy at interest rates that we haven’t seen in decades.