Although the average funded ratios of most public pension plans have been flat, in aggregate, new research from the Center for State and Local Government Excellence and the Center for Retirement Research at Boston College show funded ratios are far more divided.
The mean funded status of 180 pensions funds under traditional Governmental Accounting Standards Board guidelines has remained steady at 72% for the past seven years. However, after separating the public pension plans into three groups by their 2017 funded status, the ratios are significantly more varied.
The report shows the top third of public pension plans have an average funding ratio of 90%, while the average funded ratio for the middle third of plans has remained relatively steady around 70% since the financial crisis.
Meanwhile, the average funded ratio for the bottom third of plans is now 55% and has been in decline since the global financial crisis.
"The average is hiding a whole lot of variability in terms of trajectory," said Jean-Pierre Aubry, director of state and local research for the Center for Retirement Research at Boston College and author of the report. "In 2000, the average funding ratio was representative of the whole sample. Today, there's a lot more disparity."
"The mean is becoming less representative of any individual plan," Mr. Aubry added.
The report suggests the middle-tier plans can improve their funded statuses by adopting more stringent funding methods, while those in the bottom third likely will require intervention beyond the traditional reforms to change the trajectory of their funded status.
Looking forward, the research indicates the funded levels for plans for 2018 will most likely increase from 2017 levels due to the relatively strong market performance to June 2018 from July 2017, though a market downturn could set back plan funding.
The research used the sample of 180 state and local pension plans in the Public Plans Database.
