Public pensions’ funded ratio soars to record-setting 78.6% in Q4 2020

Milliman today released the fourth quarter (Q4) 2020 results of its Public Pension Funding Index (PPFI), which consists of the nation’s 100 largest public defined benefit pension plans.

Public pensions had a stellar final quarter of 2020, with the funded status of the Milliman 100 plans increasing from 72.6% at the end of September to 78.6% as of December 31. This funded ratio is the highest recorded in the history of Milliman’s Public Pension Funding Study and marks quite a swing from Q1 2020, at the onset of the COVID-19 pandemic, when the funded ratio hit a low of 66.0%.

The first and fourth quarters of 2020 illustrate just how closely public pension funding is tied to the vagaries of the market. Given the swings we saw this past year, the start of 2021 is a good time for plan sponsors to revisit their plans’ investment portfolios to make sure the investment strategy matches their current risk appetite.

In aggregate, PPFI plans experienced an estimated investment return of 8.36% in Q4 2020, resulting in a $388 billion gain in the market value of assets. This was offset by approximately $25 billion flowing out of the plans, as benefits paid out exceeded contributions coming in from employers and plan members. Twenty-nine plans now stand above the 90% funded mark, compared with 12 plans at the end of Q2 2020. Meanwhile, at the lower end of the spectrum, four plans moved above 60% funded, bringing the total number of plans under this mark to 22.

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

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