Tag Archives: Public Pension Funding Study

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.


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.

2123MEB_Figure 1_blog_600px

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.


Milliman issues second annual Public Pension Funding Study

Milliman today released its second annual Public Pension Funding Study, which consists of the nation’s 100 largest public defined benefit pension plans. The study offers an aggregate analysis of these 100 public pensions and their funded status. The study complements Milliman’s corporate Pension Funding Study, which is now in its 13th year.

The Milliman analysis of these 100 plans identified several significant trends. Twenty-nine of these plans lowered their interest rate assumptions, with the median interest rate used by these plans decreasing from 8.00% in 2012 to 7.75% in 2013. A reduction in interest rates increases accrued liabilities and decreases funded ratios. The average funded ratio across the 100 plans is down slightly from the 2012 study, which reflects both the lowered interest rate assumptions and market movements. Because this study is based on published reports that largely reflect 2012 valuation dates, much of 2013’s strong market performance is not reflected in this study’s results.

“This year’s study reflects a consensus move toward more conservative assumptions,” said Becky Sielman, author of the Milliman Public Pension Funding Study. “This is evident in the average reduction in interest rate assumptions since last year’s study. This year’s study also provides an objective view of funded status, independent of what the 100 plans self-report. As was the case last year, our independent analysis of these pension plans indicates that most of the plans are realistically approaching their funding calculations, with the Milliman analysis only 2.6% larger than the cumulative accrued liability reported by the plans. While that still leaves a sizeable funding hole—these plans are 70.6% funded—at least it offers a realistic view of the road ahead.”

The study provides insight into other aspects of these 100 plans, including investment allocations, liability and asset performance, and asset volatility ratios. Taken as a whole, the study allows for the ongoing, independent measurement of aggregate public pension funded status.

About the Milliman Public Pension Funding Study
The Milliman Public Pension Study is based on the most recently available Comprehensive Annual Financial Reports and actuarial valuation reports, which reflect valuation dates ranging from June 30, 2010, to December 31, 2012; about two-thirds are from June 30, 2012 or later. For the purposes of this study, the reported asset allocation of each of the included plans has been analyzed to determine an independent measure of the expected long-term annual geometric average rate of return on plan assets. The reported accrued liability for each plan has then been recalibrated to reflect this actuarially determined interest rate. This study therefore adjusts for differences between each plan’s assumed rate of investment return and a current market assessment of the expected return based on actual asset allocations. This study is not intended to price the plans’ liabilities for accounting purposes or to analyze the funding of individual plans.