US Public Pension Assets Tumble in Q4

Investment losses lead to $306 billion funding loss.

Aggregate investment losses of 6.39% led to a $306 billion loss in funding for the 100 largest public defined benefit pension plans in the US during the fourth quarter of 2018, which was the largest quarterly funding decrease in more than two years, according to consulting firm Milliman, Inc.

The decrease in the funded status was also more than double the prior largest decrease, according to Milliman.

Estimated investment losses for plans during the quarter ranged from 10.27% to 2.18%, and as a result, the funding ratio of the pension funds as tracked by the Milliman Public Pension Funding Index (PPFI) fell to 67.2% as of the end of December, from 72.9% at the end of September.

“Public pensions took a huge hit in the fourth quarter of 2018,” said Becky Sielman, author of the Milliman 100 Public Pension Funding Index, in a release. “And for those plans in which benefits paid out exceed contributions coming in, this is especially difficult news, as investment returns are critical to slow the outflow of funding.”

As of Dec. 31, 2018, the PPFI deficit was $1.693 trillion, compared to $1.387 trillion at the end of September 2018. The total pension liability also continued to expand to an estimated $5.164 trillion at the end of the fourth quarter, up from $5.123 trillion at the end of the previous quarter.

Funded ratios overall moved lower during the final quarter of the year, with nine of the 100 plans dropping below the 90% funded mark. Milliman said there were only eight plans above the 90% threshold, compared to 17 at the end of the third quarter. Additionally, the number of poorly funded pension plans also increased, as 33 plans’ funded ratios fell below 60%, with another 11 plans below 40% funded.

The Milliman 100 PPFI aggregate asset value declined to $3.471 trillion at the end of 2018 from $3.736 trillion at the end of the third quarter. The plans lost investment market value of approximately $239 billion, on top of approximately $26 billion flowing out, as benefits paid out exceeded contributions coming in from employers and plan members.

The results of the Milliman 100 Public Pension Funding Index are based on the pension plan financial reporting information disclosed in the plan sponsors’ Comprehensive Annual Financial Reports (CAFRs), which reflect measurement dates ranging from June 30, 2016, to December 31, 2017.

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