Tag Archives: Public Pension Funding Study

Funded status of 100 largest U.S. public pensions holds up reasonably well in the face of volatility and uncertainty, according to Milliman estimates

Milliman today released the results of its 2020 Public Pension Funding Study (PPFS), which analyzes funding levels of the nation’s 100 largest public pension plans, including an independent assessment on the expected real return of each plan’s investments.

For Milliman’s 2020 PPFS, the estimated aggregate funded ratio of the nation’s largest public pension plans is 70.7% as of June 30, 2020, down from 72.7% reported in our 2019 study. The aggregate Total Pension Liability reported at the last fiscal year-ends (for most plans, this is June 30, 2019) was $5.27 trillion, growing from $5.07 trillion as of the prior fiscal year-ends. And between the 2019 and 2020 PPFS, over one-quarter of the plans (28) lowered their interest rate assumptions, with 90 of the plans now reporting assumptions of 7.50% or below.

While the impact of the COVID-19 pandemic on public pensions’ financials is not fully clear, plans in this year’s PPFS experienced a huge swing in the estimated combined investment return, from -10.81% in Q1 2020 to 10.72% in Q2. More concrete evidence of the pandemic’s impact will be available once next year’s financial statements are published.

Beyond market volatility, which has affected plan assets, we expect that furloughs and shutdowns as a result of the COVID-19 pandemic will impact pay levels and employee contribution amounts, while pressure on government budgets will make it hard to free up dollars to contribute to the plans to shore up their funding. But public plans have, by and large, shown great resiliency. They are designed and financed to function over a very long time horizon, and can take short-term setbacks in stride.

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

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

Funded ratio for 100 largest U.S. public pensions climbs to 73.4%, according to Milliman estimates

Milliman today released the results of its 2019 Public Pension Funding Study (PPFS), which analyzes funding levels of the nation’s 100 largest public pension plans, including an independent assessment on the expected real return of each plan’s investments.

For Milliman’s 2019 PPFS, the estimated aggregate funded ratio of the nation’s largest public pension plans is 73.4% as of June 30, 2019, with the estimated combined investment return at 7.34% in Q1 2019 and 2.66% in Q2, and aggregate plan assets reaching $3.84 trillion as of June 30. Total Pension Liabilities (TPL) for these plans crossed the $5 trillion mark for the first time, and as of June 30, 2019, Milliman estimates the PPFS aggregate TPL to be $5.23 trillion.

Thanks in large part to strong market performance in the first half of 2019, plan assets continue to keep pace with liability growth, buoying public pension funding. But we’re also seeing plan sponsors continue to inject conservatism into their interest rate assumptions, with nearly one-third of these plans lowering rates since the last study. While interest rate assumptions of 8.00% were once the norm, 85 of the public pensions in our study now have assumptions of 7.50% or below.

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

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

Milliman study finds no correlation between level of public pension benefits and health of plans’ funded status

Milliman has released the results of its 2018 Public Pension Funding Study (PPFS), which analyzes funding levels of the nation’s 100 largest public pension plans, including an independent assessment on the expected real return of each plan’s investments.

This year, the 2018 Milliman PPFS also examined the value of pension benefits that are being paid for by plan sponsors, termed net employer-paid service cost. The study found that, of the 100 plans in the study, a majority (69) provide a pension benefit that costs between 0% and 10% of payroll. For three plans in the study, however, contributions from active members more than cover the annual cost of their own annual pension accruals. On the flip side, 13 plans have a net cost of more than 15% of payroll, indicating relatively costly benefits.

The results of the service cost analysis were eye-opening. And in fact, our study found there is very little correlation between the level of the benefits provided by plan sponsors and the funded status of a plan. Plans with a greater level of benefits are neither better funded–nor more poorly funded–than plans with modest benefits.

For Milliman’s 2018 PPFS, the estimated aggregate funded ratio of the nation’s largest public pension plans is 72.1% as of June 30, 2018, with assets earning slightly more than anticipated by the plans’ interest rate assumptions. We estimate that aggregate plan assets rose to $3.67 trillion as of June 30, 2018, and that the plans experienced a median annualized return on assets of 8.29% in the period between their fiscal year-ends and June 30, 2018. Our estimated, recalibrated total pension liability for these plans has since passed the $5 trillion mark as of June 30, 2018. Based on the market’s consensus views that long-term investment returns have been declining, the study recalibrated total pension liability for each plan using independently determined interest rate assumptions (the PPFS uses the term “interest rate” to indicate the assumption the plan sponsor has chosen to determine contribution amounts, and the term “discount rate” to indicate the rate used to measure liabilities for financial reporting purposes).

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

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




One-third of 100 largest public pensions reduced interest rate assumptions in latest reported fiscal year

Milliman today released the results of its 2017 Public Pension Funding Study (PPFS), which analyzes funding levels of the nation’s 100 largest public pension plans, including an independent assessment on the expected real return of each plan’s investments.

As of June 30, 2017, the estimated aggregate funded ratio of the nation’s largest public pension plans is 70.7%, up from 67.7% at the end of the plans’ latest reported fiscal years (generally June 30, 2016). Total assets for these plans at their fiscal year-ends were reported at $3.19 trillion, and as of June 30, 2017, are estimated to have jumped to a combined $3.44 trillion thanks to strong market performance in late 2016 and early 2017. As for Total Pension Liability (TPL), the Milliman 100 public plans reported at their latest fiscal year-ends an aggregate TPL of $4.72 trillion, covering more than 26 million members; this figure is estimated to have risen to $4.87 trillion as of June 30, 2017.

An in-depth analysis by Milliman, however, estimates these plans’ total liabilities could be even higher. Based on the market’s consensus views that long-term investment returns have been declining, the study recalibrated TPL for each plan using independently determined interest rate assumptions. For this study, we use the term “interest rate” to indicate the assumption the plan sponsor has chosen to determine contribution amounts, and the term “discount rate” to indicate the rate used to measure liabilities for financial reporting purposes. In aggregate, Milliman estimates the recalibrated TPL for the Milliman 100 plans is $4.98 trillion as of their fiscal year-ends–$260 billion higher than reported by sponsors.

In this low-interest-rate environment, market expectations on investment returns have been falling faster than plan sponsors can reassess rates. And the gap that creates between sponsor-reported and our recalibrated market-based liabilities is widening, which is all the more reason plans should continue to monitor emerging investment return expectations and adjust their assumptions as needed.

While plan sponsors report a median discount rate of 7.50% (with a spread of 6.50% to 8.50%), Milliman’s assessment of the expected real return for each plan’s investments puts the median rate at 6.71%-lower than all but six of the 100 sponsor-reported rates. Despite one-third of the plans lowering their discount rates since the last study, this gap between sponsor-reported and independently determined rates continues to widen, indicating that further reductions in discount rates will be likely in the coming years.

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




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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