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

The Milliman organization has just released its year-end “results of its Multiemployer Pension Funding Study (MPFS), which analyzes the funded status of all multiemployer defined benefit pension plans in the United States, based on data and assumptions from these plans’ latest Form 5500 filings.” The analysis covers 1,207 multiemployer plans. 

It is not surprising to see dramatic improvement in the aggregate funding of these plans given the strong performance of markets in 2023 and the continuation in providing Special Financial Assistance (SFA) grants under ARPA. How dramatic was the improved funding? According to the study, Milliman estimates that the aggregate funding is now at 89% up from 79% at the end of December 2022. As I report on a weekly basis, 70 multiemployer plans have now received more than $54 billion in SFA, with more than 120 plans still expecting to receive an SFA grant before the program ends in 2025. Without these grants, aggregate funding would fall to 83%. ARPA is proving to be such an incredible lifeline to these troubled plans and the participants that are counting on receiving their earned benefit.

According to the analysis by Milliman, 37% of the plans are at 100% funded or greater, while 78% have a funded status at or >80%. Given that there are still more than 100 pension systems expecting to file for SFA, it isn’t surprising that a small subset of multiemployer plans (9% are at <60%) are still struggling.

Just as we have suggested for those plans receiving SFA grants, we’d say the same thing to those plans with a funded status >100%. Now is NOT the time to take risk given so many cross-currents in the economy and markets. Multiemployer plans receiving the SFA can secure the promised benefits within the segregated bucket by using a cash flow matching (CFM) strategy to defease those promises as far into the future as the grant goes.

For those plans enjoying a fully funded status, bifurcate the plan’s assets into liquidity and growth buckets. The liquidity bucket will also be a defeased bond strategy that secures the promises as far into the future as the allocation goes. The remaining assets now have the benefit of an extended investing horizon. Should markets wobble once again, the growth assets will no longer be a source of liquidity to meet benefits and expenses, and as such, they can continue to grow unencumbered. Subjecting 100% of the assets to the performance rollercoaster created by traditional asset allocation strategies is not prudent.