US Public Defined Benefit Pension Assets Rebound in Q1

Pensions’ largest quarterly gain followed their largest quarterly loss.

The 100 largest public defined benefit pension plans in the US helped offset 2018 investment losses with a $185 billion surge in funding during the first quarter, which was attributed to strong investment gains of 7.34%, according to consulting and actuarial firm Milliman.

The improvement was the largest quarterly funding increase since the firm launched its Public Pension Funding Index (PPFI) in September 2016, while the fourth quarter of last year was the PPFI’s largest ever quarterly decrease at $306 billion.

“The first quarter of 2019 was a welcome relief for public pensions after the dismal investment performance at the end of 2018,” Becky Sielman, author of the Milliman 100 Public Pension Funding Index, said in a release. “Plan sponsors should take this volatility as a reminder to review their asset smoothing policies, to ensure the short-term market fluctuations don’t translate into short-term contribution volatility.”

Estimated investment returns for plans during the quarter ranged from a low of 3.52% to a high of 11.57%, according to Milliman. As a result, the funding ratio of the PPFI rose to 71.0% as of the end of March, from 67.2% at the end of December, but was down from 71.4% at the same time last year.

The PPFI aggregate deficit stood at $1.508 trillion at the end of the first quarter, compared with $1.693 trillion at the end of December. Meanwhile. the total pension liability continued to increase to an estimated $5.205 trillion at the end of the first quarter, from $5.164 trillion at the end of 2018. 

Also during the quarter, six plans moved above the 90% funded level for a total of 14 plans above this mark, up from eight at the end of last year. And at the opposite end, the number of poorly funded pension plans decreased as there were 28 plans whose funded ratios were below 60%, down from 33 at the end of 2018.

The aggregate asset value of the PPFI increased to $3.697 trillion at the end of the first quarter, from $3.471 trillion at the end of 2018. The plans’ investment market value gained approximately $252 billion, which was offset by approximately $26 billion flowing out, as benefits paid out exceeded contributions coming in from employers and plan members.

The results of the PPFI are based on the pension plan financial reporting information disclosed in the plan sponsors’ comprehensive annual financial reports.

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