US Public Pension Funding Poised to Rebound in 2023 Reporting

However, only half of the state and local retirement systems exceeded their assumed rate of return for the year.



The aggregate funded ratio for U.S. state and local retirement systems is expected to improve to 78.8% in fiscal 2023 from 75.0% in fiscal 2022 when final numbers are released, according to Equable Institute’s mid-year update to its State of Pensions 2023 report, as unfunded liabilities are forecast to have declined an estimated $200 billion to $1.39 trillion over the year.

The funding growth is a turnaround from the previous fiscal year, when the national average funded ratio for U.S. state and local public pension plans declined from 83.9% in fiscal 2021.

“It’s nice to see pension fund investments rebound from losses in 2022,” Anthony Randazzo, the Equable Institute’s executive director, said in a release. “It’s particularly noteworthy as markets were still trending down at the start of the 2023 fiscal year, suggesting that pension funds used the second half of their fiscal year to make a strong recovery.”

According to Equable, as more data becomes available about fiscal 2023, it’s “clear that the investment performance of U.S. public pension funds is mixed.” Approximately half of the pension funds that end their fiscal year in June reported preliminary returns that exceeded their investment assumptions. However, that also means the other half fell short of their assumed rate of returns. According to Equable, this variance translates to an average investment return of 5.6% for public plans in 2023 as of September 30, below the national average assumed rate of return of 6.9%.

That the average return came in below the average assumed rate of return for the year is “concerning” to Randazzo, who added that “it is likely that persistent unfunded liabilities will remain a threat in the coming years unless we see significant improvements in returns or increases in contributions.”

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

Over the last year. U.S. state and local pension funds have faced “many mixed signals,” according to Equable, which noted that the 2022 bear market led into a community bank crash before markets rebounded into the summer of 2023.

“However, on net, investment performance of state and local pension funds fell short of important investment targets,” Equable’s update stated.

Meanwhile, a second straight month of market declines lowered the estimated funded status of the 100 largest U.S. public pension plans to 73.2% as of September 30 from 75.3% as of the end of August, according to the Milliman 100 Public Pension Funding Index

The plans had an average investment loss of 2.6% in September, with estimated losses for individual plans ranging from a loss of 1.6% to a 4.2% loss. As a result, the asset value of the pension funds decreased $114 billion to $4.477 trillion as of September 30 from $4.591 trillion as of August 31. Of the $114  billion decrease, approximately $10 billion was attributed to a net negative cash flow. At the same time, the deficit between the assets and liabilities increased from $1.508 trillion at the beginning of September to $1.636 trillion at the end of the month.

“With this performance, another plan fell below the 90% funded mark, so that only 16 plans stood above that benchmark at the end of September,” Becky Sielman, a consulting actuary and a co-author of Milliman’s PPFI, said in a release. “At the other end of the spectrum, another two plans—for a total of 25—were less than 60% funded at month’s end.” 

Related Stories:

U.S. State, Local Public Pensions Saw Funding Statuses Fall in 2022

Public Pensions Remain Active in Adapting Allocations

Will US Public Pension Plans Ever Get Back to Full Funding?

Tags: , , , , ,

New SEC Proposal Would Limit Bulk Discounts for Exchange Trading

Exchanges would be forbidden from offering volume-oriented rebates or pricing for broker/dealer agency orders.



The Securities and Exchange Commission proposed a new rule Wednesday that would prevent exchanges from offering preferential volume pricing or rebates for large orders from brokers, which the regulator sees as benefitting larger broker/dealers.

An SEC release stated that the proposal would “prohibit national securities exchanges from offering volume-based transaction pricing in connection with the execution of agency or riskless principal.” Riskless principle or agency trades are trades in which an exchange couples buy and sell orders together between different customers in offsetting trades.

Exchanges that offer volume discounts for other trades must maintain anti-evasion and disclosure policies. Among other items, such exchanges must disclose “the number of members that qualify for each transaction pricing tier that the exchange offers,” and these disclosures would be made public on the SEC website.

The proposal would only cover trades executed on behalf of clients. Broker/dealers trading on their accounts would be exempt and could therefore still benefit from volume-based pricing schemes.

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

SEC Chairman Gary Gensler explained in the announcement that the proposal is intended to increase competition and allow smaller brokerages to better access trading markets. Gensler stated, “We have heard from a number of market participants that volume-based transaction pricing along with these market practices raise concerns about competition in the markets” because “mid-sized and smaller broker-dealers effectively pay higher fees than larger brokers to trade on most exchanges.”

Xiaoxiang Zhu, the director of the SEC’s division of trading and markets, noted at the SEC’s October 18 hearing that the proposal could reduce conflicts of interest by disincentivizing brokers from timing or bundling orders to get bulk pricing when it might not be in the best interest of their client.

SEC Commissioners Hester Peirce and Mark Uyeda both opposed the proposal. They argued that bulk pricing is a part of many markets because it incentivizes more efficient behavior, especially for transactions with fixed costs that are high relative to their unit costs.

 “When wholesalers give volume discounts to retailers, they generally do not do this out of generosity or charity; they do it because moving items in bulk may be more efficient, and the volume discounts reflect that efficiency,” Uyeda said in a statement. “In competitive markets, customers benefit from these volume discounts.”

The American Securities Association stated via email that it has “long been concerned about concentration in the equity markets and ending the discriminatory incentives that disadvantage small and mid-size market participants over larger ones, and this issue is particularly acute with volume-based rebates.”

The industry association wrote that the SEC has an obligation to “put an end to the exchanges’ monopolistic rent-seeking practices that harm America’s working families, savers, and retirees.”

The proposal was sent out for public comment by a vote of 3 to 2, with Peirce and Uyeda voting against it. The comment period will extend 60 days after the proposal is entered into the Federal Register.

Tags: , ,

«