US Defined Benefit Plans Rise in Q2, Recoup Losses from Q4 2018

The 100 largest US public DB plans saw a $50 billion rise in funding during the quarter.

The 100 largest US public defined benefit pension plans saw a $50 billion jump in funding in the second quarter of the year, which caused its funded ratio to rise to 72.2% from 71.0% the previous quarter, according to consulting firm Milliman.

Milliman attributed the increase to solid aggregate investment gains of 2.66% as estimated returns ranged from 1.33% to 4.39% for the plans, which have now mostly recovered the investment losses they suffered during the final quarter of 2018.

“Public pension funded ratios are basically back where they were a year ago,” Becky Sielman, author of the Milliman 100 Public Pension Funding Index, said in a statement. “But over the past 12 months annualized returns, at 6.0%, fell short of long-term expectations. It’s good to remember that investment horizons for these plans are measured in decades, so short-term fluctuations are something plan sponsors have to live with to reap long-term rewards.”

The overall annualized return for the 12 months ending June 30 is slightly under 6.0%, which falls short of most of the plans’ expected long-term earnings assumptions. The aggregate asset value rose to $3.789 trillion at the end of the second quarter from $3.697 trillion at the end of the first quarter. The plans gained investment market value of approximately $119 billion, which was offset by approximately $27 billion flowing out, as benefits paid out exceeded contributions coming in from employers and plan members.

The aggregate deficit for the plans fell to $1.458 trillion at the end of June from $1.508 trillion at the end of March. And the total pension liability (TPL) for the plans continues to grow and was an estimated $5.247 trillion at the end of the second quarter, up from $5.205 trillion at the end of the prior period.

As the plans’ funded ratios moved higher, three plans moved above the 90% funded mark to bring the total to 17 plans that currently stand above the threshold, compared to 14 at the end of the first quarter. Meanwhile there are 28 plans that have funded ratios below 60%, and nine plans are below 40% funded.

The results of Milliman’s Public Pension Funding Index are based on the pension plan financial reporting information disclosed in the plan sponsors’ comprehensive annual financial reports.

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