New Research Shows 2014 Unfunded Pension Liabilities Hit 150% Spike

Despite contribution increases, most plans experienced negative amortization over the past decade.

Despite employer and employee contributions increasing significantly, a majority of pension plans saw negative amortization and the total unfunded liabilities increased 150% —from 2006 to 2014— according to a report from the Society of Actuaries (SOA).

“Contributions have been going up and they’ve been going up a lot faster than inflation. Unfunded liabilities have been growing way faster than all of that,” said Lisa Schilling, retirement research actuary of the Society of Actuaries. “If its an issue of waiting for the market to bail everybody out, well, that doesn’t seem to be working.”

While both employer and employee contributions increased 76% (from $48 billion to $85 billion) and 30% (from $28 billion to $37 billion), respectively, the majority of plans experienced negative amortization. In addition, the total unfunded liabilities increased 150% during this period from $400 billion in 2006 to roughly $1 trillion in 2014. In 2014, 73% of the plans were funded, four points below the SOA’s average for the time period, but on par with the PDD’s full timeframe.

Factors vary for the unfunded liabilities, but Bill Hallmark, ASA, FCA, MAAA, EA Consulting Actuary at Cheiron observed, “For the period of the SOA study, I believe the primary factors were the plans’ actual investment returns compared to expected returns and assumption changes that affected the measurement of the liability.”

Schilling questions whether public plans can be helped by the market.

“Nope, not anytime soon can we rely on the markets to dig out of this hole,” she says. “I think it’s taken a long time to catch up to the reality of any kind of contribution reductions that employers might’ve been enjoying in [the market heydays of the 1980s and 1990s]. There’s a different reality now, and it looks like while they’ve been working hard to increase their contributions, they’re still behind. They haven’t been able to catch up. “

The report, released June 22, is based on Public Plans Data research dated from February 3, 2017. The PPD’s data includes 160 US public pensions, which covers nearly 27 million employees.  The SOA’s research focuses on data from 130 of those plans from 2006-2014. The plans are a general mix of the largest accounts in the country, which accounts for 95% of the state and local pensions. Schilling says that the reason for not using all 160 plans and the full timeline is because some plans don’t have enough data.

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