Stagnant Returns Produce Lower Public Pension Funded Levels in January

Flat investment returns helped reduce the estimated aggregate funded level of the 100 largest public pension plans in the U.S. by $33 billion in January, according to consulting firm Milliman, as the plans’ funded ratio declined to 77.7% at the end of January from 78.2% a month earlier.

The deficit between the plans’ assets and liabilities, as tracked by the Milliman 100 Public Pension Funding Index, increased during January to $1.389 trillion at the end of the month from $1.356 trillion at the start of the month.

Milliman estimated the 100 plans had an average investment return of 0% during January, with results for individual plans ranging from a 1.0% loss to a 1.1% return. The static market performance meant there was no change in the number of plans with funded levels above 90%, nor was there a change in the number of plans with funded levels below 60%.

“Despite January’s lack of investment gains and the drop in funded status, 21 plans remain more than 90% funded, the same number as last month,” said Becky Sielman, co-author of Milliman’s PPFI, in a release. “At the other end of the spectrum, only 15 plans are less than 60% funded, the same as in December, reflecting overall stability in public pensions.”

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The total asset value of the plans decreased to $4.837 trillion, as of January 31, from $4.857 trillion as of the end of December 2023. The $20 billion drop was due to an approximately $11 billion loss in market value, in addition to net negative cash flow of approximately $9 billion. Meanwhile, the estimated deficit between the assets and liabilities widened to $1.389 trillion at the end of the month from $1.356 trillion at the end of December.

Milliman also provided projections of what it expects the aggregate funded status of the pensions will be at the end of January 2025 based on three scenarios. The baseline scenario assumes that the investment returns for each plan will match their assumed rate of return, which Milliman estimates to be a median of 7%. The “optimistic” and “pessimistic” scenarios assume each plan’s investment returns will be 7% higher or 7% lower than their assumed rate of return.

According to Milliman, under the baseline scenario, the funded status of the pension funds would increase slightly to 79% at the end of January 2025, while the “optimistic” and “pessimistic” scenarios would result in the funded level either rising to 84.2% or dropping to 73.8%.