Improved Funding for Public Pension Plans, But Caveats
The overall funded ratio for public pension plans improved by just over four percentage points in 2014. That’s good news, but in its recent study Milliman
also includes some caveats
that indicate that in both the short and long run, the picture may not be entirely rosy.
Milliman’s annual Public Pension Funding Study, which examines the funded status of the 100 largest U.S. public pension plans, says that on a market value basis, the funded status of public pension plans increased from 70.7% in 2013 to 75% in 2014. Milliman attributed these results largely to sustained strong asset growth through 2014.
But the positive results in 2014 may not be replicated regarding 2015. The report calls equities’ performance in 2015 an “imminent funding challenge” and says that the flat market in 2015 will hurt funded ratios. In addition, it says, expectations of long-term declines in returns spell higher liabilities in the future,
Most ominously, the latest Milliman report indicates that demographics do not bode well for public pension plans. It says that since 2012, the number of plan participants that are active and not yet collecting their pensions has held steady at around 12.5 million. But during that time, that number has not kept pace with the plan participants who are inactive and retired. Their ranks have grown from 10.5 million in 2012 to 12.6 million in 2015, and that now, for the first time, retired and inactive public plan participants outnumber the active.