U.S. public pension plan funding levels saw modest improvement in 2015, rising to 74% from 73% the previous year, said a report released Thursday by the Center for State and Local Government Excellence and the Center for Retirement Research at Boston College.
Researchers looked at 160 state and local public pension funds representing more than 90% of assets and participants in the U.S., and found three main reasons for improved funding. Over the past five fiscal years, public pension plans saw relatively strong investment performance, with annual average returns of 11% over the five-year fiscal period. Governments also paid more of their actuarially determined contributions, reaching 91% in 2015, up from 86% in 2014. Benefit cutbacks put in place since the financial crisis have also slowed the pace of liability growth, researchers found.
“Fundamentally, future funding levels will depend on asset returns,” said Jean-Pierre Aubry, Center for Retirement Research's associate director of state and local research, during a briefing on the report.
If the public pension funds reach their assumed rates of return over the next five years, overall funding levels could reach 77% or more in five years, but if returns are closer to what some financial firms predict, which is lower than those assumed rates, funding levels could dip to 71% by 2020, the researchers found.
The report is available the CSLGE's website.