Category Archives: Public employers

Lackluster asset performance in Q2 drops public pension funding by $23 billion

Milliman has released the 2018 second quarter results of its Public Pension Funding Index (PPFI), which consists of the nation’s 100 largest public defined benefit pension plans. In Q2, these plans experienced a $23 billion loss in funding, largely due to a lackluster asset performance of 0.70% in aggregate. The plans earned approximately $45 billion for the quarter, below assumed investment returns reflected in liability calculations. This shortfall is exacerbated by $28 billion flowing out of the plans, as benefits paid out exceeded contributions coming in from employers and plan members. The PPFI funding ratio dipped slightly from 71.4% in Q1 2018 to 71.2% in Q2.

Without the strong investment performance we saw in 2017, it’s difficult for these public pensions to gain ground. If a plan’s benefits paid out exceed contributions coming in, reliance on the market is even more crucial to buttress funding.

As of June 30, 2018, the PPFI deficit stands at $1.448 trillion, the largest since the index began in September 2016. The total pension liability (TPL) topped the $5 trillion mark for the first time in Q2, at an estimated $5.025 trillion at the end of the quarter, up from $4.985 trillion at the end of Q1. Funded ratios did not move much this quarter, with one more plan dropping below the 90% funded mark; there are now just 14 plans above this mark, 26 plans whose funded ratios fall below 60%, and 11 plans remain below 40% funded.

To view the Milliman 100 Public Pension Funding Index, click here.

To receive regular updates of Milliman’s pension funding analysis, contact us here.

Pension and OPEB underfunded status after Michigan PA 202

The Protecting Local Government Retirement and Benefits Act (the Act) addressed underfunding issues associated with pension plans and retiree medical plans in Michigan that are sponsored by local governments. Prescribed actuarial assumptions used to make calculations have not yet been set. This paper by Milliman consultants Tim Herman and Jack Chmielewski aims to help stakeholders of Michigan’s many local government pension and other post-employment benefit programs develop informed expectations around the range of outcomes that could result from the state treasurer’s decisions about actuarial assumptions as they relate to the Act.

GASB 74/75: Impact on small government employers

GASB Statements No. 74 and 75 have substantially revised the valuation and accounting requirements previously mandated under GASB Statements No. 43 and 45. With implementation required for plan fiscal years beginning after June 15, 2016, for GASB 74 and June 15, 2017, for GASB 75, the time is now for government entities to understand and comply with the new requirements. This article by Milliman’s Joanne Fontana reviews the Alternative Measurement Method, which is used by small government employers in lieu of an actuarial valuation, and discusses the important changes relevant to small government employers as GASB 74/75 takes effect.

GASB 74/75: OPEB expense and balance sheet items

New accounting rules in the United States for postemployment benefits other than pension (OPEB), first implemented in 2016, are now in effect. Successful implementation of the new rules will require an understanding of a variety of technical concepts regarding the newly required calculations.

This article by Milliman actuary Rebecca Ross explores OPEB expenses and balance sheet items. Rebecca discusses the new requirements for disclosing OPEB expense and the effect these changes will have on plan and employer financial statements.

This article is part of the Governmental Accounting Standards Board Statement 74 and 75 miniseries. 

Public pension funding falls back to 71.4% in the first quarter of 2018

Milliman has released the 2018 first quarter results of its Public Pension Funding Index (PPFI), which consists of the nation’s 100 largest public defined benefit pension plans. In Q1, these plans experienced a $93 billion loss in funding, largely resulting from volatile equity markets that produced an aggregate -0.75% investment return for these plans. In comparison, the PPFI investment return for 2017 Q4 was 3.24%. From January 1, 2018, to March 31, 2018, the PPFI pensions saw their funded status drop from 73.1% to 71.4%.

After more than a year of running smoothly, the market stubbed its toe in Q1. As a result, much of last year’s robust pension funding gains were washed away in early 2018.

No plans in our index seem to have made it through the first quarter of 2018 unscathed, with estimated returns ranging from a low of -1.91% to a high of -0.03%; the Milliman 100 PPFI deficit grew from $1.332 trillion to $1.425 trillion during Q1. The losses resulted in six plans dropping below the 90% funded mark, with 15 plans now over 90% funded, down from 21 as of 2017 Q4. At the other end of the spectrum, 26 of the 100 plans now have funded ratios below 60%, with 10 plans that remain below 40% funded.

To view the Milliman 100 Public Pension Funding Index, click here.

To receive regular updates of Milliman’s pension funding analysis, contact us here.

Public pension funding improves by $60 billion, funded ratio climbs to 73.1% in 2017 Q4

Milliman has released the 2017 fourth quarter results of its Public Pension Funding Index (PPFI), which consists of the nation’s 100 largest public defined benefit pension plans. In Q4, these plans experienced a $60 billion improvement in funded status, the result of the continued robust trend in equity returns in 2017. In aggregate, these plans saw investment returns of 3.24%, with a spread ranging from a low of 1.55% to a high of 4.32%. The funded ratio of the Milliman 100 PPFI climbed from 71.6% at the end of September to 73.1% as of December 31. The fourth quarter’s stellar investment returns helped propel five more public pensions across the 90% funded mark, bringing the total to 21 plans—over one-fifth of the PPFI—that have crossed that significant threshold.

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. 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, say, interest rate assumptions—which carry greater long-term implications for these pensions.

The Milliman 100 PPFI total pension liability (TPL) increased from $4.908 trillion at the end of 2017 Q3 to an estimated $4.947 trillion at the end of Q4. The TPL is expected to grow modestly over time as interest on the TPL and the accrual of new benefits outpaces the benefits paid to retirees. Asset values for these plans have increased from $3.517 trillion to $3.615 trillion during the same time period; and while investments brought in approximately $126 billion, the plans collectively paid out approximately $28 billion more in benefits than they took in from contributions.

To view the Milliman 100 Public Pension Funding Index, click here.

To receive regular updates of Milliman’s pension funding analysis, contact us here.