Milliman: Pension funding levels of largest public plans falls below 70% in latest year

The aggregate funding ratio of the 100 largest public pension plans fell an estimated 1.9 percentage points in the year ended June 30 because of declining interest rates and lower market gains, said Milliman’s annual public pension funding study released Thursday.

As of June 30, the estimated aggregate funding ratio was 69.8%, down from 71.7% the previous year. The median annualized return on assets was estimated at 1.31% in the year ended June 30, with total pension assets estimated to have fallen to $3.2 trillion from $3.24 trillion, while total pension liabilities went up 3.3% to $4.58 trillion from $4.43 trillion.

The report also said that 25 of the 100 largest plans have lowered their return assumptions during the most recent fiscal year, with 58 of the 100 plans lowering them since Milliman began this annual study in 2012.

“For the last few years we’ve noticed public pensions hunkering down and lowering assumed rates of return,” said Rebecca A. Sielman, principal and consulting actuary and author of the Milliman Public Pension Funding Study, in a news release. “That trend continued this year, and it’s not about to abate any time soon. The gap between sponsor-reported assumptions and our independently determined assumptions is the biggest we’ve seen, which indicates that rates still have a ways to go down and plan sponsors will face continuing pressure to reduce their interest rate assumptions.”

Milliman’s independently determined return assumption was 6.99%, compared to sponsors’ median reported rate of 7.5%.