New Research Shows 2014 Unfunded Pension Liabilities Hit 150% Spike

Despite contribution increases, most plans experienced negative amortization over the past decade.

Despite employer and employee contributions increasing significantly, a majority of pension plans saw negative amortization and the total unfunded liabilities increased 150% —from 2006 to 2014— according to a report from the Society of Actuaries (SOA).

“Contributions have been going up and they’ve been going up a lot faster than inflation. Unfunded liabilities have been growing way faster than all of that,” said Lisa Schilling, retirement research actuary of the Society of Actuaries. “If its an issue of waiting for the market to bail everybody out, well, that doesn’t seem to be working.”


While both employer and employee contributions increased 76% (from $48 billion to $85 billion) and 30% (from $28 billion to $37 billion), respectively, the majority of plans experienced negative amortization. In addition, the total unfunded liabilities increased 150% during this period from $400 billion in 2006 to roughly $1 trillion in 2014. In 2014, 73% of the plans were funded, four points below the SOA’s average for the time period, but on par with the PDD’s full timeframe.

Factors vary for the unfunded liabilities, but Bill Hallmark, ASA, FCA, MAAA, EA Consulting Actuary at Cheiron observed, “For the period of the SOA study, I believe the primary factors were the plans’ actual investment returns compared to expected returns and assumption changes that affected the measurement of the liability.”

Schilling questions whether public plans can be helped by the market.

“Nope, not anytime soon can we rely on the markets to dig out of this hole,” she says. “I think it’s taken a long time to catch up to the reality of any kind of contribution reductions that employers might’ve been enjoying in [the market heydays of the 1980s and 1990s]. There’s a different reality now, and it looks like while they’ve been working hard to increase their contributions, they’re still behind. They haven’t been able to catch up. “

The report, released June 22, is based on Public Plans Data research dated from February 3, 2017. The PPD’s data includes 160 US public pensions, which covers nearly 27 million employees.  The SOA’s research focuses on data from 130 of those plans from 2006-2014. The plans are a general mix of the largest accounts in the country, which accounts for 95% of the state and local pensions. Schilling says that the reason for not using all 160 plans and the full timeline is because some plans don’t have enough data.

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Court Rejects $187 Million Pension Lawsuit Against Align Technology

Plaintiffs alleged the company misled investors regarding its 2011 Cadent acquisition.

The 9th Circuit has upheld a district court’s dismissal of a class-action lawsuit against Align Technology that alleged the orthodontic technology company misled investors about its 2011 acquisition of Cadent, a provider of 3D digital scanning solutions for orthodontics.

The lawsuit, which had the City of Dearborn Heights Police and Fire Retirement System as its lead plaintiff, claimed that Align made false and misleading statements concerning its goodwill valuation of Cadent. It alleged that the company deliberately overvalued the goodwill of Cadent’s computer-aided design and manufacturing and scanner unit when Align conducted its 2011 annual goodwill impairment.

The plaintiffs argued that the $187.6 million purchase price for Cadent, which was justified in part on Cadent’s 2010 revenues, was artificially inflated. They cited former Cadent employees as confidential sources, who said Cadent “offered substantial and unprecedented discounts to its customers in the last quarter of 2010” in an attempt to make itself “appear more valuable to an acquirer.”

The suit claimed the practice, known as channel stuffing, resulted in an unsustainable 147% increase in scanner sales by Cadent for the 2010 fiscal year. It also alleged Align had knowledge of Cadent’s channel stuffing because it would have been “readily apparent” from Align’s due diligence, and direct access to Cadent’s financial reports and company documents through a data room that Cadent made available during the acquisition process. Align allegedly used Cadent’s artificially inflated 2010 revenue as the basis for projecting a 20% sales growth rate, and 50% gross margins for the unit.

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Although the unit’s revenue increased sequentially from the fourth quarter of 2011 to the second quarter of 2012, it never met the projected 20% growth rate in any quarter following the acquisition. The unit’s gross margins also failed to meet the 50% projection, and instead ranged from 24% to 36%.

The circuit court panel affirmed the district court’s dismissal for failure to adequately plead falsity or scienter (intent or knowledge of wrongdoing) of a securities fraud action under the Securities Exchange Act of 1934 and SEC Rule 10b-5. The panel said the plaintiffs failed to sufficiently plead falsity under any of the three Omnicare standards, which were established by the Supreme Court’s 2015 decision in Omnicare Inc., v. Laborers District Council Construction Industry Pension Fund.

The three standards are:

  1. When a plaintiff relies on a theory of material misrepresentation, the plaintiff must allege both that the speaker did not hold the belief she professed, and that the belief is objectively untrue.
  2. When a plaintiff relies on a theory that a statement of fact contained within an opinion statement is materially misleading, the plaintiff must allege that the supporting fact the speaker supplied is untrue.
  3. When a plaintiff relies on a theory of omission, the plaintiff must allege facts going to the basis for the issuer’s opinion, whose omission makes the opinion statement at issue misleading to a reasonable person reading the statement fairly and in context.

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