Public pension funding dropped $23 billion in Q2

As of June 30, 2018, the PPFI deficit is the biggest it's been since the index began in September of 2016, at $1.448 trillion. (Photo: Shutterstock)

Asset performance during the second quarter that was “lackluster” caused the funded ratio of public pensions to fall to 71.2 percent, representing a drop of $23 billion.

According to the Milliman Pension Funding Index, the country's 100 largest public defined benefit pension plans demonstrated a “lackluster asset performance of 0.70 percent in aggregate” that resulted in a decrease of $23 billion.

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While the plans earned approximately $45 billion for the quarter, that was less than assumed investment returns that were reflected in liability calculations. In addition, the shortfall was made worse by an outflow of $28 billion from the plans, as benefits paid out were higher than contributions coming in from employers and plan members.

As a result, the PPFI funding ratio was down slightly, from Q1 2018's 71.4 percent, to 71.2 percent in Q2.

“Without the strong investment performance we saw in 2017, it's difficult for these public pensions to gain ground,” Becky Sielman, author of the Milliman 100 Public Pension Funding Index, says in a statement. Sielman adds, “If a plan's benefits paid out exceed contributions coming in, reliance on the market is even more crucial to buttress funding.”

As of June 30, 2018, the report says, the PPFI deficit is the biggest it's been since the index began in September of 2016, at $1.448 trillion. The total pension liability rose above the $5 trillion mark for the first time in Q2, coming in at an estimated $5.025 trillion at the end of the quarter. That's up from the end of Q1, when it stood at $4.985 trillion.

Funded ratios were sluggish during Q2, and one more plan fell below the 90 percent funded mark. At present, there are only 14 plans above this mark; in addition, there are 26 plans whose funded ratios fall below 60 percent, and 11 plans that remain below the 40 percent funded level.