PensionsJanuary 30, 2024

Market Rally Raises US Public Pension Funded Levels to 2023’s Highest Point

The stock market rebound in November and December spurred a $349 billion increase in the 100 largest U.S. public plans’ funding, per Milliman.

Reported by Michael Katz

As markets rallied during November and December, so did the funded status of the 100 largest U.S. public pension funds, which ended 2023 at their highest point of the year at 78.2%.

According to consulting firm Milliman, the market rebound helped spur a combined $349 billion increase in funding. The aggregate funded level of the plans, as tracked by Milliman’s Public Pension Funding Index, rose to that 78.2% figure from 75.9% at the end of November and 72.4% at the end of October.

“The late-year rally pushed nine more plans above 90% funding so that 21 plans stood above this key benchmark as of December 31—a big jump from the 12 we saw as of October 31, 2023,” Becky Sielman, co-author of Milliman’s PPFI, said in a release. “On the other end of the spectrum, 11 plans moved above 60% funding, leaving only 15 of the 100 plans below this level, compared with 26 at the end of October, a good sign for the overall health of public pensions.”

The plans earned estimated investment returns of 5.2% and 3.3% in November and December, respectively, with returns for individual plans ranging from 2.5% to 7.7% in November and 1.7% to 5.0% in December. The total asset value of the plans increased to $4.857 trillion as of the end of December from $4.704 trillion at the end of November and $4.480 trillion at the end of October.

The market value of the plans increased by approximately $233 billion during November, offset by $9 billion in net negative cash flow, and by approximately $162 billion during December, again offset by $9 billion in net negative cash flow.

The total pension liability grew to an estimated $6.213 trillion as of the end of 2023, up from $6.199 trillion at the end of November and $6.185 trillion at the end of October.

Milliman also projected how aggregate funded status will fare in 2024 under three scenarios. A baseline scenario assumes each plan’s future investment returns will equal its current reported interest rate assumption, with a median rate of 7.0% used for the projections. While “optimistic” and “pessimistic” scenarios assume each plan’s investment returns will be either 7% higher or lower than its interest rate assumption.

Under the baseline scenario, Milliman projects the aggregate funded ratio of the 100 plans would end 2024 at 79.5%, while under the optimistic and pessimistic scenarios, it projects the funded level to end the year at 84.8% or 74.2%, respectively.