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Milliman Funding Survey Highlights Impact of Past Year’s Market Surge


Propelled by surging financial markets, public pensions achieved an aggregate funded ratio of 85% in the fiscal year that ended June 30, according to an analysis of the 100 largest U.S. plans by actuarial and consulting firm Milliman.

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Milliman Funding Survey Highlights Impact of Past Year's Market Surge


Propelled by surging financial markets, public pensions achieved an aggregate funded ratio of 85% in the fiscal year that ended June 30, according to an analysis of the 100 largest U.S. plans by actuarial and consulting firm Milliman.

The results are a big jump from a funded ratio of 70.7% a year earlier and reflected an average annual return on assets of 27% among the 100 largest plans, Milliman said in a white paper, 2021 Public Pension Funding Study

“While the significant improvement in funded status is welcome news to public pension plan stakeholders, it is important to remember that a market correction could quickly send plan assets down to more typical levels,” the Milliman white paper said.

The firm estimated that assets of the 100 largest plans stood at $4.82 trillion as of June 30, up from $3.90 trillion a year earlier. Liabilities rose to $5.67 trillion as of June 30, up from $5.50 trillion a year earlier. As a result, Milliman's estimate of the gap between current assets and long-term liabilities declined to $850 billion at midyear-2021, down from $1.60 trillion a year earlier.

Milliman warned that the recent strong market performance might not provide any budgetary relief because most pension systems use one or more smoothing procedures to limit the impact of market volatility on contribution levels.

The analysis also noted that there is little correlation between the generosity of the benefits paid and the plan's funded status. In other words, “plans with generous benefits are neither better-funded nor more poorly funded than plans with modest benefits.”

In other key findings:
  • Total pension liability of the top 100 plans ranging from $11 billion to $521 billion.
  • Some 47% of the pension plans studied had funded ratios of 90% or better as of June 30, up from 13% a year earlier.
  • In all, 19% of the pension plans had funded ratios of 60% or less as of June 30, down from 30% a year earlier.
  • The number of active plan members remained steady at 12.5 million in the year ended June 30, while the number of inactive and retired members rose 2.8% to 14.8 million.
  • Member contributions rose 4%, to $52 billion, in the 12 months through June 30, while employer contributions rose 9%, to $157 billion.
  • Overall asset allocation has changed very little over the recent years, “with just a modest, gradual shift from equities to alternative investments.” Private equity, real estate, and alternatives (i.e., not equities, fixed-income, or cash) rose to 28% of holdings in 2021 versus 23% in 2013.
  • Reflecting a consensus on long-term future investment returns, 95% of the plans had a rate of return assumptions of 7.5% or less, down from 90% a year earlier. Nearly a quarter of the plans (24%) reduced their assumptions since the year-ago report.
  • In the 12 months leading up to June 30, 2022, the plans are projected to receive $225 billion in contributions from employers and members and payout $323 billion in benefits and administrative expenses, for a net cash outflow of $98 billion.


 
 

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