Tag Archives: Becky Sielman

Public pensions regain ground lost in Q4, experience $78 billion improvement in funded status

Milliman has released the 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 2017, the funded ratio of these plans regained ground lost at the end of last year, climbing from 70.1% at the end of December to 72.0% as of March 31, 2017. These plans saw their funded status improve by $78 billion for the quarter, the result of strong investment returns (measuring 4.29% in aggregate) that led public plan asset growth to outpace the rise in pension liabilities.

Thanks to robust market performance in Q1, the funded ratios for our Milliman 100 plans improved across the board, with five additional pensions crossing the 90% funded mark. And while quarterly investment returns dwarfed those of Q4, the wide range in performance–from a low of 2.12% to a high of 5.06%–highlights the challenge that lies ahead for many poorly funded plans.

Of the Milliman 100 plans, 15 have funded ratios above 90%, 64 have funded ratios between 60% and 90%, and 21 have funded ratios lower than 60%. The Milliman 100 PPFI total pension liability (TPL) increased from $4.659 trillion at the end of Q4 to an estimated $4.698 trillion at the end of Q1. 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.

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 status inches back down in Q4 as asset returns fall short of benchmark

Milliman today released the fourth quarter results of its Public Pension Funding Index (PPFI), which consists of the nation’s 100 largest public defined benefit (DB) pension plans. By December 31, 2016, the funded ratio of these plans had fallen to 70.1%, down from 71.0% at the end of September. The funded status declined by $54 billion, the result of modest investment returns for the fourth quarter that fell short of the quarterly benchmark.

The robust market performance seen post-election helped moderate the losses suffered in October, with Q4 investment returns of about 0.45% in aggregate for the quarter. If the recent surge in the equity market holds up and interest rates remain stable, the returns in 2017 Q1 should be much more promising.

The Milliman 100 PPFI total pension liability (TPL) increased from $4.620 trillion at the end of Q3 to an estimated $4.659 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.

To view the Milliman 100 Public Pension Funding Index, click here. To receive regular updates of Milliman’s pension funding analysis, email us.

Public pension plans’ funded status improves in Q3

Sielman-BeckyMilliman today released the third-quarter results of its Public Pension Funding Index, which consists of the nation’s 100 largest public defined benefit pension plans. As of September 30, the funded ratio of these plans rose to 71.0%, up from 69.8% at the end of June. The funded status improved by $48 billion, the result of an estimated $86 billion increase in plan assets thanks to relatively healthy investment returns of 3.5% for the quarter.

While investment returns were healthier than expected, our Milliman 100 plans experienced a wide range of returns, from an estimated low of 1.33% to a high of 4.37%. Bond funds and commodities generally fared poorly, after having done well in the second quarter. It’s yet to be seen whether they will rebound as we close out the year.

The Milliman 100 PPFI total pension liability (TPL) increased from $4.583 trillion at the end of Q2 to an estimated $4.620 trillion at the end of Q3. 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.

To view the Milliman 100 Public Pension Funding Index, click here. To receive regular updates of Milliman’s pension funding analysis, email us.

Fifth annual Milliman Public Pension Funding Study finds funded status for 100 largest public pension plans drops below 70%

Sielman-BeckyMilliman today released its fifth annual Public Pension Funding Study, which consists of the nation’s 100 largest public defined benefit pension plans and analyzes these plans from both a market value and an actuarial value perspective. A year with returns of just 1.31% and increasing liabilities pushed the funded status for these 100 plans below 70%. We estimate that between the plan sponsors’ most recent measurement dates and June 30, 2016, total plan assets decreased from $3.24 trillion to $3.20 trillion, while the liability grew from $4.43 trillion to $4.58 trillion, resulting in a deficit of $1.38 trillion on June 30.

For the last few years we’ve noticed public pensions hunkering down and lowering assumed rates of return. That trend continued this year, and it’s not about to abate any time soon. The gap between sponsor-reported assumptions and our independently determined assumptions is the biggest we’ve seen, which indicates that rates still have a ways to go down and plan sponsors will face continuing pressure to reduce their interest rate assumptions.

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Historically, assumptions of 8.50% were commonplace, but as of this year more than half of these plans have assumptions that are 7.50% or lower. Twenty-five of these 100 plans lowered their assumptions in the last year, and 58 have lowered their assumptions since Milliman began publishing this study in 2012.

To view the complete study, click here. To receive regular updates of Milliman’s pension funding analysis, email us.

Milliman issues fourth annual Public Pension Funding Study, provides objective analysis of funded status for 100 largest plans

Sielman-BeckyMilliman today released its fourth annual Public Pension Funding Study, which consists of the nation’s 100 largest public defined benefit pension plans and analyzes these plans from both a market value and an actuarial value perspective. Another year of strong market conditions in 2014 helped drive a funded status improvement of more than 4%, but challenging times lie ahead. After years of strong asset performance, 2015 has been flat from an equity standpoint. Furthermore, many public plan sponsors have reduced return assumptions going forward, a trend that reflects today’s market realities but also creates a steeper hill to climb if these pensions are to reach full funding.

These pensions had a decent year in 2014, but given the early returns in 2015, the road ahead could be challenging for the 66% of these plans that are less than 80% funded. Many public plans have become more realistic about return assumptions in recent years—the median return assumption has decreased from 8.00% in 2012 to 7.65% this year—which will further steepen the climb to full funding, especially for the 10% of our study that are currently less than 50% funded.

This year’s study revealed that a significant milestone has been reached with the country’s largest public pension plans: for the first time, the number of retired and inactive members covered by these plans outstripped the number of employees who are earning benefits. And the accrued liability for those retirees overshadows the accrued liability for employees by more than 40% in aggregate.

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Milliman issues third annual Public Pension Funding Study, provides objective analysis of funded status for 100 largest plans

Sielman-BeckyMilliman today released its third annual Public Pension Funding Study, which consists of the nation’s 100 largest public defined benefit pension plans and analyzes these plans from both a market value and an actuarial value perspective. Strong market conditions have propelled improvement in the market value of plan assets, and that improvement has exceeded the increase in accrued liabilities. However, the market losses suffered during the financial crisis continue to cause a drag on the actuarial value of plan assets, resulting in a slight decrease in the funding ratio when analyzed from that perspective. The two asset measures are converging and funded ratios have crept upward as these plans have continued to distance themselves from the financial crisis. Meanwhile, investment return assumptions were level from the prior year but remain higher than current long-term market return expectations, causing concern that accrued liabilities may be modestly underreported.

Our study provides an independent investment return assumption, which we use to recalibrate the liabilities for these 100 plans. While the investment return assumptions and funded ratios remain fairly level from last year, the gap between Milliman’s recalibrated accrued liability and the plan-reported accrued liability widened from 2.6% in 2013 to 3.8% in this year’s study. While Milliman lowered our median investment return assumption from 7.47% in 2013 to 7.34% this year, only 13 of the 100 plans in our study reported a reduction in their investment return assumption this year. We expect more plans will consider lowering return assumptions in coming years in response to market conditions.

This year’s study revealed a number of other developments. The number of retired/inactive members in these 100 plans grew from 11.8 million members to 12.1 million. In the aggregate, the plans currently have sufficient assets to cover 100% of the sponsor-reported accrued liability for retirees and inactive members, but beyond that would cover only 29% of the liability for active plan members.

This year’s study explores whether poorly funded public plans are more apt to use unrealistically high investment return assumptions or invest disproportionately in risky investments. Contrary to common perception, the study finds that there is in fact very little correlation between a plan’s funded status and the use of high interest rates or riskier investments.

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