The brief from authors Jean-Pierre Aubry, associate director of state and local research, and Yimeng Yin, research economist, noted that the aggregate funding ratio can obscure significant variations at the plan level. The brief separates public pension funds into thirds based on the health of their estimated funding ratio. The average among the bottom third plans was 57.6%, while among the middle third was 79.5% and the top third was 91.1% as of June 30.
However, the overall improvement in estimated aggregate funding ratio across all public pension plans since the end of fiscal year 2019 is significant since those four years have seen the onset of the pandemic, subsequent stimulus packages, declining interest rates, rising inflation and then rising interest rates, the authors said in the brief.
The brief also said the percentage of actuarially determined contributions that are actually being paid is closing in on 100%, with the latest estimate coming in at 98.4%.
"This measure is somewhat cyclical because financial and economic downturns often coincide," the authors said. "For example, it fell in the wake of the dot.com crash of the early 2000s and the financial crisis of 2008-2009. As budgets recovered and the funded ratios stabilized as a result of stock market gains, the required contributions also stabilized and the percentage of required contribution paid increased."
The authors also noted that despite the turbulence in the markets since the end of fiscal year 2019, most measured asset classes have had strong estimated annualized returns, with public equities at 11.5%; private equity, 8.6%; commodities, 6.4%; hedge funds, 5%; and real estate, 1.9%. The only exception is fixed income, which has an annualized loss of 0.6% in the four years ended June 30.
The full brief is available on the Center for Retirement Research's website.