Public Pension Funding Ratio Hits Three-Year High in Q4 2019

But market volatility caused by the coronavirus threatens to erase some of the gains.


The overall funded ratio for the 100 largest public defined benefit pension plans in the US rose to 74.9% during the fourth quarter of 2019 from 72.7% during the previous quarter, and from 67.2% at the same time the previous year, according to actuarial and consulting firm Milliman.

The plans are now at their highest funding levels since Milliman launched its Public Pension Funding Index (PPFI) in September 2016, and 20 of the plans have reported funded ratios that are higher than 90%, up from 17 at the end of the third quarter. At the other end of the spectrum, the number of more poorly funded pension plans declined. There are 26 plans with funded ratios below 60%, including eight plans remain below 40% funded.

“The 15.9% annualized investment returns we saw for these plans far exceeded expected assumptions for 2019,” Becky Sielman, author of the Milliman 100 PPFI, said in a statement. “But given the recent stock market volatility, 2020 seems off to a tougher start. It remains to be seen whether the market reaction to the coronavirus will be a repeat of 2018 (that is, a brief downturn and then robust recovery) or more of a prolonged recession such as we saw in 2009.”

In aggregate, the plans had an investment return of 4.47% during the quarter, with estimated returns ranging from 0.23% to 6.24% as their total asset value climbed to a PPFI high of $3.979 trillion at the end of 2019 from $3.833 trillion at the end of the third quarter. The plans gained investment market value of approximately $171 billion, which was offset by approximately $24 billion flowing out, as benefits paid exceeded contributions coming in from employers and plan members.

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The plans’ total pension liability also continued to increase and reached an estimated $5.313 trillion at the end of 2019 from $5.271 trillion at the end of September. As a result, the aggregate deficit declined to $1.334 trillion for the fourth quarter from $1.438 trillion at the end of September.

As pension assets grow over time from investment income and decline as benefits are paid, so too does the total pension liability grow over time with interest and shrink as benefits are paid. The total pension liability also increases as active members accrue pension benefits.

The results of the Milliman 100 PPFI are based on the pension plan financial reporting information disclosed in plan sponsors’ comprehensive annual financial reports, which reflect measurement dates ranging from June 30, 2016 to Dec. 31, 2018.

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