US Public Pensions Bounce Back from Dismal First Quarter

Asset gain of $308 billion in April-June period lifts estimated funded ratio to 71.2% from 66%.


After a dismal first quarter, the 100 largest public defined benefit (DB) pension plans in the US bounced back to recoup $308 billion in asset market value to raise the estimated funded ratio for the pensions to 71.2% at the end of June from 66% at the end of March.

Consulting firm Milliman, which tracks the pensions with its Milliman 100 Public Pension Funding Index (PPFI), attributed the gains to investment returns of approximately 10.7% for the second quarter, nearly negating the 10.8% loss in the first period.

It was a sharp turnaround from the first quarter of the year, when public pension plans lost a median 13.18%, according to the Wilshire Trust Universe Comparison Service (TUCS), marking it as the worst quarterly performance in the 40 years TUCS has been tracking public pension plan data.

However, the strong quarter rebound isn’t necessarily a sign of things to come.

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“While public pension funding status has improved dramatically over the past three months, the longer term economic impact of COVID-19 on funding remains uncertain,” Becky Sielman, author of the Milliman 100 PPFI, said in a statement.

“Returns for the past 12 months ending June 2020 averaged just 3.84%, markedly lower than plan sponsor reported funding interest rates,” she added. And because about 80% of the plans’ fiscal year ends June 30, “the 2019-2020 reporting year will likely go into the books as a year of modest investment losses, despite the second quarter rally.”

The deficit for the PPFI contracted to $1.554 trillion at the end of June from $1.819 trillion at the end of March, while the asset value increased to $3.844 trillion from a PPFI low of $3.536 trillion at the end of the first quarter.

The plans’ market value increased approximately $332 billion, which was offset by approximately $24 billion flowing out as benefits paid exceeded contributions from employers and plan members. The total pension liability rose to an estimated $5.398 trillion at the end of the second quarter, up $43 billion from $5.355 trillion at the end of the first quarter.

Milliman said that because of the dramatically improved funded ratios, there were 12 plans above the 90% funded mark during the second quarter, compared with just four at the end of the previous quarter. And, at the other end of the spectrum, seven plans rose above the 60% funded level, lowering the total number of plans under this benchmark to 28 from 35 at the end of the first quarter.

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