Volatility Has Little Effect on Public Pension Funded Levels in March

The funded ratio of the 100 largest U.S. public pensions rose despite interest rate hike, banking failures.

The funded ratio of the 100 largest U.S. public pension plans increased to 74.5% as of the end of March, from 73.6% at the end of February, improving the plans’ funded status by $54 billion, according to consulting firm Milliman’s Public Pension Funding Index.

The increase was attributed to market performance, as the plans earned an estimated 1.8% in aggregate for the month, with individual plans’ estimated returns ranging from 0.7% to 2.8%.

Milliman said that despite a “a significant amount of market activity during March,” including yet another interest rate hike by the Federal Reserve and notable banking failures, the effect on the largest 100 pension plans was relatively small.

“Although March was a volatile month in the financial markets with another Fed rate hike and turmoil in the banking industry, investment performance for the country’s largest public pension plans was modestly positive for the period,” Becky Sielman, co-author of Milliman’s PPFI, said in a release.

According to the firm, the deficit between the estimated assets and liabilities narrowed modestly during the month to $1.534 trillion from $1.588 trillion. The plans’ aggregate asset value increased to $4.492 trillion as of March 31, from $4.423 trillion as of February 28. The plans also increased their market value by approximately $78 billion, which was partially offset by a net negative cash flow of $9 billion.

The total pension liability grew during the month to an estimated $6.026 trillion from $6.011 trillion. Like pension assets, the total pension liability grows over time with investment income and shrinks as benefits are paid; it also grows as active members accrue pension benefits.

The market performance was small enough during the month that it did not change the number of plans below 60% funded or above 90% funded. Milliman said that 24 plans remain less than 60% funded, and 17 remain more than 90% funded.

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