Top 100 US Public Pensions Lose $23 Billion in Q2

Milliman’s top 100 US pension funds took a light hit in the second quarter, losing $23 billion in funding.

The average funded status of the Milliman 100 Public Pension Funding Index went from a 71.4% funded status to 71.2% in the period ended June 30. The investment returns reaped only 0.70% for the quarter, just barely picking up the slack of Q1’s 0.75% loss.

Total investment values at the end of the period rose to $3.577 trillion. While returns were barely positive as the 100 pension plans collectively earned $45 billion in contributions, they were offset by $28 billion in benefits payments.

Becky Sielman, the index’s author, said that it would be tough for the pensions to progress “without the strong investment performance we saw in 2017.” She added that benefit payouts exceeding contributions lead to greater market reliance in order to “buttress funding.”

For more stories like this, sign up for the CIO Alert newsletter. 

The total debt for the 100 funds is at $1.448 trillion, the largest since September 2016, when the index was created. In addition, total pension liabilities broke $5 trillion for the first time, at $5.025 trillion.

One plan’s funded status fell under 90%, bringing the total funds in the index below 90% to 14. Of the top 100 US public pensions, 60 are between 60% and 90% funded, and 26 are under 60%.

Sielman would not disclose which fund dipped under 90%.

Tags: Funded Status, Milliman, Milliman 100 Public Pension Funding Index, Pension

Lost amid the enthusiasm about the strong economy is that the July jobs report came in on the low side, with 157,000 new nonfarm positions created. Is that a reason for concern? Probably not. Economists think it likely was statistical noise.

The report had been running a lot stronger in recent months: June was 213,000, and was revised upward to 248,000. Certainly, the July report could be revised up, too, although it’s doubtful the increase would be very sizable. Economists surveyed by Reuters had predicted nonfarm payrolls increasing by 190,000 jobs.

“Could this be the start of a more extended drawdown?” wondered Brad McMillan, chief investment officer of Commonwealth Financial Network, in a recent research note. “Reasons to believe it might be include the large contribution to job growth from manufacturing, which might be under threat from the tariff wars, as well as the growing shortage of workers.”

The report was “disappointing this time but it could be due to seasonal factors and some companies holding back on hiring,” Peter Cardillo, chief market economist at Spartan Capital Securities, told Reuters.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

The consensus seems to be that this was just a blip. “Labor demand is strong enough to keep the payroll trend at 200K-plus, pushing unemployment down,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote on his commentary.

Periodically during the long recovery from the Great Recession, monthly job growth has surprised on the downside. This past March, it was only 155,000, and subsequently shot higher. Before, there were even scarier low numbers, namely May 2016’s 34,000 and September 2017’s 14,000.

“One down month isn’t enough to signal a trend change, and the long-term job growth trend remains above where it was in 2017,” MacMillan noted. “More than that, after a strong run—and job growth this year has been very strong—a weak month or two is normal, even expected.”

Tags: employment, labor force participation rate, unemployment rate