Public pension funded status increased to 78.6% at the end of February, up from 77.7% the month before, according to the monthly Milliman Inc. 100 Public Pension Funding Index, which tracks the funded status of the largest 100 public defined benefit plans in the U.S.
Public plan funded status rose in February to the highest level since May 2022, when funded status for these plans stood at 78.4%, and 78.6% the month before. In the interim, funded status bottomed out at 69.8% in September 2022.
The month-to-month increase of almost one full percentage point represents a $56 billion rise in funding. According to Milliman, individual plans returned anywhere from 0.0% to 3.2% in February. Plans gained $79 billion in market value, far exceeding $9 billion in negative cashflow.
The average funded status of 78.6% across the largest 100 public plans represents a $1.333 trillion gap between plan assets and liabilities, as of February 29. That gap stood at $1.389 trillion the month before.
Plan assets among the PPFI were $4.907 trillion at the end of February, an increase from $4.837 trillion in January. Plan liabilities were $6.240 trillion, up from $6.226 trillion the month before.
On a plan-by-plan basis, Milliman reported no funds reached the significant thresholds of 60% or 90% in February.
“Although most plans saw an improvement in their funded status, this month’s above-average market performance did not move any plans across either the 60% or 90% funded ratio mark,” said Becky Sielman, co-author of Milliman’s PPFI, in a news release. “As a result, by the end of February we’re holding on to the gains we saw in Q4 of last year, with 21 plans above 90% funded, and 15 plans below 60% funded.”
According to a January 2024 report from Equable regarding the state of public pensions in 2023, a majority of public plans are either distressed or fragile, meaning they have funded statuses of 60% or less or between 60% and 90%. The Equable report found that only 10 states had pension plans that had a funded ratio greater than 90%, while only six were fully funded. According to Milliman, plans in the PPFI had a funded status of 78.2% at year-end 2023.
According to the PPFI, 64 plans have funded ratios between 60% and 90%, while 21 plans have funded ratios higher than 90%. Out of those 21 plans, nine are fully funded or are in surplus, with two plans exceeding 120%.
Milliman projected that public plan funding could increase to 80% in a baseline scenario by the end of February 2025, assuming that these plans achieve their assumed rate of return, with a median interest rate of 7%. In an optimistic scenario, funded status is projected to increase to 85.3% over the next year if plan assets return 7% above their assumed rate of return. In a pessimistic scenario, funded status could decline to 74.7% if plans return 7% less than their assumed rate of return.
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Tags: Becky Sielman, Defined Benefit Plans, Funded Status, Milliman, Milliman 100 Public Pension Funding Index, Pensions