The average funding ratio of the 100 largest U.S. public pension plans dropped slightly in fiscal year 2016, following two years of increases.
The average funding ratio of the 100 public pension plans that Pensions & Investments tracks dropped to 74.99% for fiscal year 2016 from 75.19% the prior year. Still, the ratio was higher than the 73.13% average in fiscal year 2013, which was the lowest since P&I started tracking the data 10 years ago.
The slip came in a tepid year for returns, as the median one-year return among plans that disclosed investment performance for fiscal 2016 was 1.3%. That, combined with employer and employee contributions, was not enough to overcome the continuing rise in pension liabilities.
In aggregate, the top 100 plans had unfunded liabilities of $942.9 billion as of their most recently available actuarial valuation date, compared with $723.6 billion the year before. Total actuarial assets had risen to $2.83 trillion from $2.19 trillion, but the rise in actuarial liabilities matched the rise in assets, rising to $3.77 trillion from $2.92 trillion.
In fiscal 2016, employee and employer contributions totaled $140.1 billion, up 17.5% from the previous year. Employer contributions for 2016 totaled $100 billion, up 15.8% from the previous year, while employee contributions for 2016 totaled $40.1 billion, up 22%.
The increase in contributions is a good sign, experts say, but given the dip in average funding ratio, it still is not enough and more contributions are needed.
Alicia Munnell, director of the Center for Retirement Research at Boston College, said its research shows plans have not been progressing as they should for the past 15 years in terms of funded status improvement.
"What we basically came down to is the fact (pension plans) all have low returns over this period since 2000 and also they're basically looking at the wrong annually required contribution that's not rigorous enough. They're not paying all of that. That's the general problem."
"If we have another financial correction, which we're inevitably going to do, they're at risk at seeing a significant downgrade in their funded status," Ms. Munnell said.