Funded Status of Largest 100 US Public Pension Funds Rises to 78.6%

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.

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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.

Stagnant Returns Produce Lower Public Pension Funded Levels in January

Most US Public Pension Funds Are Distressed, per Equable Report

Tags: Becky Sielman, Defined benefit (db) pension plans, Funded Status, Milliman, Milliman 100 Public Pension Funding Index, Pensions

The Texas Permanent School Fund’s move to pull $8.5 billion from BlackRock Inc. is the latest eruption in an ongoing red-state backlash against asset managers’ environmental, social and governance investing. As a result, Wall Street managers are continuing to move away from the ESG label.

Last Tuesday, the Texas Board of Education’s chairman, Aaron Kinsey, announced that BlackRock’s “destructive approach” toward the state’s large oil and gas industry prompted the PSF divestment.

Texas is among several Republican-controlled states that bar asset managers and banks they believe boycott energy companies. Oklahoma, Kentucky and West Virginia, all fossil fuel producers, are among those enacting anti-ESG measures centered on the alleged boycotts. Oklahoma Treasurer Todd Russ said in a statement sent to CIO that “the spirit and intention of the law is to protect Oklahomans and the economic base of the state.”

According to Pleiades Strategy, a policy research group, 38 laws targeting ESG principles have been passed in 17 states, as of the end of January. Opposition from both environmentalist and business groups has been intense, and Pleides stated that most of the 38 laws have been “watered down.”

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In Texas, which passed Senate Bill 13 in 2021 requiring state agencies to divest from financial companies deemed “to boycott energy companies,” the BlackRock divestments were the result of a 5-1 vote last month by the PSF board to eliminate two of the asset manager’s funds, in international equity and emerging markets equity. The PSF’s CEO termed BlackRock’s EM stocks strategy “very risky.” The state also has barred financial firms with ESG ties from working with state agencies and local governments, such as by underwriting municipal bonds.

BlackRock Vice Chairman Mark McCombe fired back against the divesting decision on Thursday, citing his firm’s “consistent, long-term investment outperformance” that benefited Texas schools and families. In a letter to Kinsey, the Texas Board of Ed chair, McCombe urged that the decision be reversed.

Meanwhile, there is some evidence that the anti-ESG push has gained headway. Last year, investors removed $13 billion from ESG mutual funds, Morningstar research found. And this came even though large ESG funds rose 24.4% for the year, slightly behind the S&P 500 (by two percentage points), but still a good showing.

BlackRock CEO Larry Fink, a staunch ESG backer, last year announced he would stop using the term, as it had become too politicized. BlackRock has denied boycotting oil and gas investing, insisting it maintains investments in Texas-based energy firms, including ExxonMobil Corp. and Occidental Petroleum Corp.

In February, BlackRock, State Street and JPMorgan Chase & Co. scaled back their involvement or withdrew from Climate Action 100+, a global consortium of asset managers that had been pushing companies to end fossil fuels use.

Nonetheless, some business groups have been less willing to roll over in the face of the anti-ESG pressure from Republican officials. One week before the PSF’s BlackRock decision, the Texas Association of Business and Chamber of Commerce Foundation, the nonprofit research arm of the Texas Association of Business, issued a statement saying the prohibition on select financial institutions working for public entities would cost Texas: losing the state $668.7 million in economic activity, its companies $180.7 million in earnings and state and local governments $37.1 million in tax revenue.

The organization’s statement warned: “In simple terms, when government attempts to mandate values (no matter what kind) to business, the market loses, and taxpayers bear the consequences.”