Data and Research December 21, 2022

Rising Markets Boost U.S. Public Pension Funding

The aggregate funded levels of the 100 largest public pension funds grew to 74.7% during November, up from 71.6% in October.

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Strong market gains during October and November helped the estimated funded levels of the 100 largest public pension plans in the U.S. rebound to 74.7%, as of Nov. 30, from 71.6% a month earlier, according to consulting firm Milliman’s public pension funding index. It was a sharp turnaround from September, when poor market performance erased more than five percentage points from the funded ratio during the month alone.

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The aggregate asset value of the pension funds increased by approximately $158 billion to $4.225 trillion as of the end of October, then increased by approximately $200 billion to $4.417 trillion as of the end of November. The gap between the estimated assets and liabilities for the pension funds narrowed to $1.496 trillion at the end of November, from $1.808 trillion at the beginning of October, thanks in large part to investment returns of 2.8% and 4.7% in October and November, respectively.

The improved funded levels moved seven of the 100 plans above the 90% funded mark, as of the end of November, to bring the total to 19 plans, compared with 12 at the end of September. However, this is still far below the 46 plans that were more than 90% funded at the end of 2021.

At the same time, another seven plans moved above the 60% funded level, lowering the total number of plans under the threshold to 24 from 31 as of Sept. 30. However, this is still more than the 18 plans with funded levels below 60% at the end of 2021.

The total pension liability grew to an estimated $5.913 trillion, as of November 30, from $5.883 trillion on Sept. 30 and $5.898 trillion at the end of October.

Compliance December 21, 2022

Molina, flexPATH ERISA Suit Continues, But Adviser NFP Dropped

A federal judge is allowing a plaintiff’s lawsuit against plan sponsor Molina Healthcare and TDF provider flexPATH to continue, but has absolved adviser NFP from a fiduciary duties breach.

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A federal judge in California dropped retirement and investment adviser NFP Retirement, Inc. from a complaint tied to plan sponsor Molina Healthcare, while allowing claims to move forward against Molina Healthcare and a target-date fund provider with ties to NFP.

Three plaintiff claims against NFP were dismissed by the U.S. District Court for the Central District of California on December 8. Judge Stanley Blumenfeld said two of the complaints happened too far in the past to meet the Employee Retirement Income Security Act’s timeline of six years, and a third complaint failed to state an appropriate claim.

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Blumenfeld otherwise denied Molina Healthcare, its board committee and target-date fund provider flexPATH Strategies’ dismissal motion for three counts against them, noting they should go ahead for further hearing.

The original lawsuit targeting Molina Healthcare said the plan sponsor caused participants to invest in flexPATH’s “untested target-date funds,” which the plaintiffs claimed partially repackaged existing products from asset manager BlackRock and sold it to investors at a higher fee. The funds also allegedly replaced “established and well-performing target-date funds” previously offered to participants, which, the complaint alleged, added complexity, but not value.

A subsequent lawsuit sought to tie in New York-based NFP, alleging that the adviser was also a fiduciary to the retirement plan based on the advice it gave to Molina Healthcare to include the flexPATH TDFs. The complaint also alleged that the decision to add the TDFs to the plan benefitted NFP and flexPATH by providing an immediate and substantial transfer of more than $200 million of plan assets.

NFP is closely affiliated with flexPATH, according to court documents, which state that NFP’s parent corporation, CEO and president collectively own the TDF provider. The plaintiffs’ suit claimed that NFP and flexPATH are closely related due to sharing the same offices and headquarters, but, in the defense, the firms argued that they operate independently.

Ultimately, Blumenfeld dismissed the counts that included NFP but kept three of the claims of fiduciary breach against Molina Healthcare and flexPATH.

Blumenfeld did deny a request from the plaintiffs for an advisory jury. He said the court has the capability to assess the lawsuit, which the plaintiffs are seeking to make a class action.

The Molina Healthcare plan had grown to more than $740 million in assets, with more than 15,600 participants, by the end of 2020, according to the court filing.

The full text of the new complaint is available here.

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