The funded status of the 100 largest public defined benefit pension plans in the US improved by $60 billion in the fourth quarter of 2017, bringing their funded level up to 73.1% from 71.6% at the end of the previous quarter, according to the consulting firm Milliman.
In aggregate, the plans had investment returns of 3.24% during the quarter, as estimated returns ranged from a low of 1.55% to a high of 4.32%. This brought their total asset value to $3.615 trillion at the end of the fourth quarter, from $3.517 trillion at the end of the third quarter.
The plans generated investment income of approximately $126 billion, but the plans collectively paid out approximately $28 billion more in benefits than they took in through contributions from employers and plan members, according to Milliman. At the same time, the aggregate deficit of the plans fell to $1.332 trillion at the end of the year, from $1.392 trillion at the end of September.
“While a lot of media attention has been paid to the recent market volatility in early February, it’s not a reason to panic when it comes to public pensions,” said Becky Sielman, author of the Milliman 100 Public Pension Funding Index (PPFI). “Equity gains and losses are typically smoothed out over a number of years when calculating pension funding, making short-term market volatility less of a concern on funding than interest rate assumptions—which carry greater long-term implications for these pensions.”
The total pension liability of the PPFI increased to an estimated $4.947 trillion at the end of the year from $4.908 trillion at the end of the third quarter. Meanwhile, funded ratios improved broadly, with five more plans surpassing the 90% funded mark by the end of the fourth quarter. There are now 21 plans out of the 100 with funded levels above 90%, compared to 16 at the end of the previous quarter, and just 10 at the end of 2016.
However, among the more poorly funded pension plans, there has been less improvement, said Milliman, as 24 plans have funded levels below 60%, and 10 plans have funded levels below 40%. This is relatively unchanged from the end of 2016, when there were 25 plans with funded ratios lower than 60%, and 11 below 40%.