Over the past few years, the average funded status of Taft-Hartley pension plans has improved significantly, reaching the highest levels since the 2008 financial crisis. While some of this improvement stems from the Special Financial Assistance Program (SFA) under the American Rescue Plan Act (ARPA), strong equity market performance has also played a role.

With plans in stronger funded positions, as shown in Figure 1, now may be an opportune time to consider “getting off the roller coaster” by de-risking the pension plans. This means shifting toward more stable investment strategies to preserve funded status gains. However, timing this transition can be challenging as de-risking a Taft-Hartley plan is different from the well- established de-risking strategies for a single-employer corporate pension plan. Here, we explore how trustees can capitalize on the current opportunity to implement a strategy that improves long-term sustainability.

Figure 1: Milliman Multiemployer Pension Funding Study

Source: Milliman Multiemployer Pension Funding Study

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How did we get here?

Traditionally, Taft-Hartley pension plans have followed a “going concern” investment philosophy — targeting long-term returns aligned with the assumed return on assets (used to value liabilities) while managing risk exposure. While this strategy can lead to robust gains in strong markets, the pension roller coaster illustrates that plans are exposed to significant downside risk during market downturns, often making it difficult to recover without external support. The issues were perpetuated as plans became more mature, which increased the occurrence of negative net cashflow where more money is paid out to retirees than is contributed to the plan.

ARPA’s SFA program marked a turning point. Plans receiving assistance are now required to invest the majority of those funds in high-quality, investment- grade fixed income assets. This approach provides more predictable cash flow and improves benefit security for retirees for decades to come. Although only underfunded plans receiving SFA are subject to the requirement, the structure has sparked broader interest among trustees in applying similar strategies across all Taft-Hartley plans, not just those receiving aid.

What can we do?

A key risk management tool is de-risking with a custom liability-driven strategy, in particular one focused on cash flow matching. This approach aligns a portion of the plan assets — specifically investment grade bonds — with the timing and amount of expected retiree payments.Most Taft-Hartley pension plans are mature, with a large share of liabilities attributable to retirees already receiving benefits. These liabilities tend to have shorter maturities/durations and are therefore more efficient to hedge using a cash flow-matched fixed income strategy.

For the sample plan illustrated in Figure 2, the average maturity of the retiree liabilities is half that of the active population. By constructing a diversified portfolio of individual bonds that mature in line with the scheduled benefit payments, the plan makes sure funds are available precisely when needed leading to reduced funded status volatility.

Figure 2: Sample Projected Benefit Payments

Source: PNC

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How much de-risking is appropriate?

There is no one-size-fits-all answer. The optimal level of derisking depends on many factors, including fiduciary risk tolerance, plan status, plan maturity, funded status, expected investment return assumptions and expectations for future funding. A prudent first step is to shift the existing fixed income investments to a liability- matching framework. If the fixed income allocation is small relative to the total liability, plans can consider matching a specified portion of future retiree cashflows (e.g., up to 10 years). From there, plans can adopt a glidepath strategy that has a higher allocation to return- seeking (i.e., equity-like) assets at lower-funded levels and gradually shifts toward liability-matching assets as the funded status improves.

A reasonable target when the plan reaches full funding is to allocate enough to cover all retiree liabilities using a liability-matching strategy. For instance, the plan shown in Figure 3 that currently has 31% allocated to fixed income assets would shift the initial 31% to liability-matching strategy, and further move toward 70% liability match, corresponding to the share of liabilities for retirees in pay status as the plan ages. This strategy minimizes shortfall risk in the plan while preserving some exposure to growth assets to cover the longer-term liabilities of active participants.

Figure 3: Sample Asset Allocation Progression

Source: PNC

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What's next?

De-risking is not just a tactical shift, it’s a strategic evolution toward long-term stability. Before implementing changes, plan trustees should conduct a comprehensive asset liability study to understand the impact on plan metrics, particularly the expected return on assets (which directly affects liability valuations for Taft-Hartley plans. With the recent higher interest rate environment, many plans can de-risk without significantly reducing expected returns. But each plan’s situation is unique, and careful analysis is essential.

Once a de-risking strategy is implemented, reporting requirements should evolve to focus on asset performance relative to liabilities. This shift in focus promotes a comprehensive view of plan health, ultimately providing greater retirement security for participants.

For plan trustees considering how to stabilize the pension, now is the time to evaluate options. A thoughtful de-risking approach could be the key to leaving the pension roller coaster behind — for good.

For more information, contact Kimberlene Matthews, FSA, EA, CFA, Managing Director, Pension & Enterprise Solutions, at PensionEnterpriseSolutions@pnc.com.

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Accessible Version of Charts

Figure 1: Milliman Multi-employer Pension Funding Study

Fiscal Year	Market Value of Plan Assets	Projected Benefit Obligation	Funded Ratio	Surplus / (Deficit)
2007	$ 419	$ 492	85.2%	$ (73)
2008			60.1%	$ (201)
2009			69.5%	$ (159)
2010			73.5%	$ (141)
2011			69.8%	$ (164)
2012	$ 414	$ 571	72.5%	$ (157)
2013	$ 473	$ 585	80.9%	$ (112)
2014	$ 480	$ 597	80.4%	$ (117)
2015	$ 461	$ 612	75.3%	$ (151)
2016	$ 488	$ 634	77.0%	$ (146)
2017	$ 549	$ 659	83.3%	$ (110)
2018	$ 502	$ 678	74.0%	$ (176)
2019	$ 605	$ 712	85.0%	$ (107)
2020	$ 641	$ 732	87.6%	$ (91)
2021	$ 692	$ 761	90.9%	$ (69)
2022	$ 618	$ 784	78.8%	$ (166)
2023	$ 720	$ 807	89.2%	$ (87)
2024	$ 795	$ 818	97.2%	$ (23)
2025	$ 870	$ 842	103.3%	$ 28

Figure 2: Sample Projected Benefit Payments

	Active	Deferred	Retired	Total
2022	3,418,162	209,307	67,503,885	71,131,353
2023	6,429,602	341,154	65,056,894	71,827,650
2024	9,051,574	514,849	63,065,843	72,632,266
2025	11,646,765	704,699	61,146,943	73,498,407
2026	14,032,968	860,608	59,188,089	74,081,664
2027	16,155,435	1,058,261	57,283,860	74,497,555
2028	17,977,433	1,226,410	55,418,860	74,622,704
2029	19,538,556	1,402,945	53,552,649	74,494,150
2030	21,212,030	1,583,697	51,620,372	74,416,099
2031	22,531,935	1,766,722	49,635,485	73,934,142
2032	23,704,044	1,970,279	47,597,248	73,271,571
2033	24,740,725	2,119,702	45,502,533	72,362,960
2034	25,815,732	2,248,990	43,360,038	71,424,760
2035	26,803,233	2,346,208	41,178,786	70,328,228
2036	27,662,146	2,458,385	38,967,961	69,088,493
2037	28,460,220	2,548,754	36,736,733	67,745,707
2038	29,209,961	2,612,066	34,494,399	66,316,426
2039	29,856,044	2,665,611	32,250,573	64,772,227
2040	30,402,636	2,717,729	30,015,145	63,135,510
2041	30,836,345	2,746,820	27,798,297	61,381,462
2042	31,223,854	2,784,540	25,610,448	59,618,841
2043	31,527,484	2,797,096	23,462,269	57,786,849
2044	31,746,072	2,813,090	21,364,686	55,923,848
2045	31,842,493	2,807,037	19,328,751	53,978,280
2046	31,839,255	2,807,039	17,365,554	52,011,849
2047	31,722,754	2,768,706	15,486,069	49,977,528
2048	31,525,881	2,702,191	13,700,944	47,929,016
2049	31,213,782	2,630,778	12,020,272	45,864,833
2050	30,784,691	2,553,638	10,453,063	43,791,392
2051	30,253,165	2,465,988	9,006,850	41,726,003
2052	29,640,102	2,385,938	7,687,226	39,713,265
2053	28,898,175	2,289,308	6,497,456	37,684,938
2054	28,081,939	2,180,760	5,438,229	35,700,927
2055	27,197,735	2,066,037	4,507,482	33,771,255
2056	26,220,256	1,949,403	3,700,524	31,870,182
2057	25,166,955	1,824,222	3,010,279	30,001,457
2058	24,082,566	1,701,570	2,427,790	28,211,926
2059	22,953,947	1,577,146	1,942,774	26,473,867
2060	21,789,302	1,457,823	1,544,180	24,791,304
2061	20,608,820	1,339,828	1,220,762	23,169,410
2062	19,408,431	1,225,759	961,529	21,595,718
2063	18,210,145	1,116,614	756,104	20,082,864
2064	17,024,370	1,013,160	594,991	18,632,521
2065	15,864,945	915,619	469,732	17,250,296
2066	14,731,455	824,241	372,996	15,928,691
2067	13,635,270	739,011	298,582	14,672,863
2068	12,581,116	659,865	241,386	13,482,367
2069	11,572,174	586,669	197,309	12,356,152
2070	10,610,540	519,245	163,131	11,292,916
2071	9,697,016	457,399	136,377	10,290,792

Source: PNC

Figure 3: Sample Asset Allocation Progression

	Current	Retiree Liability Match	Future Stage – Fully Funded
Return Seeking	69%	69%	30%
Fixed Income	31%	0	0
Liability Match	0	31%	70%

Source: PNC