The funded level of the 100 largest U.S. public pension funds declined to 87.4% in September, from 89.0% in August as a result of an average 1.4% investment loss that erased $112 billion in funding, according to actuary and consulting firm Milliman.
“September’s challenging markets caused another decline in assets and funded status for the 100 largest public pension plans,” said Ryan Falls, co-author of the Milliman PPFI, in a statement. “Still, nearly half of the plans remain more than 90% funded, and only 11 are below the 60% funding mark, illustrating the underlying health of public pension systems.”
The total asset value of the plans, as tracked by the Milliman 100 Public Pension Funding Index, decreased to $6.067 trillion as of September 30 from $6.162 trillion as of August 31. During the month, the plans lost a market value of approximately $87 billion, in addition to a net negative cash flow of approximately $8 billion.
The total pension liability for Milliman’s 100 public pensions, which estimates the present value of projected future pension benefits, rose to an estimated $6.944 trillion as of September 30, from $6.927 trillion at the end of August.
The deficit between the plans’ estimated assets and liabilities increased to $877 billion at the end of September from $765 billion at the beginning of the month. For the month, the plans’ estimated returns ranged from -3.4% to -0.5%.
As a result of the investment losses, the number of plans at the 90% funded level or higher decreased to 47 from 51 at the end of August. There were 42 plans with funded levels of 60% to 90%, up from 39 the previous month, while the number of plans below 60% funded increased to 11 from 10.
In forecasting the plans’ funded level at the same time next year, Milliman provided three scenarios with different estimates. The baseline scenario assumed a 7% return, approximating most plans’ assumed rate of return, an optimistic scenario that assumes a 14% gain, and a pessimistic outlook that assumes no returns.
Under the positive scenario, the average funded level for the plans would rise to 92.7% by the end of September 2027 but drop to 83.4% if the pessimistic scenario plays out.
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Tags: investment performance, Milliman 100 Public Pension Funding Index, public pension funds