COVID-19 economic volatility caused public pension plans to shed $419 billion in market value during the first quarter of 2020, according to new analysis from Milliman, Inc.
The global consulting and actuarial firm released the first quarter 2020 results of its Public Pension Funding Index (PPFI) on April 16, which consists of the nation’s 100 largest public defined benefit pension plans.
During Q1 2020, the overall funded ratio for these plans suffered the single largest quarterly drop in the history of the PPFI, decreasing from 74.9% to 66.0% between January 1 and March 31. In aggregate, these pensions experienced investment returns of -10.81% in Q1. Individual plans in the PPFI had estimated returns ranging from -17.41% to 4.76%.
“Coming off the heels of what was a stellar fourth quarter in 2019, the economic fallout from the COVID-19 pandemic has completely wiped out any public pension funding gains we saw last year,” said Becky Sielman, author of the Milliman 100 Public Pension Funding Index. “While these pensions now have a long way to go to return to pre-pandemic funding levels, it’s important to remember that most public pension plans use some sort of asset smoothing mechanism to dampen the impact of market gyrations. This gives plan sponsors some breathing space to explore and plan for how this market downturn will impact contributions.”
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Breaking down the plans by funded ratio, four plans now remain at 90% funded or higher, down from 20 the previous quarter. Meanwhile, at the lower end of the spectrum nine plans fell below the 60% funded mark, bringing the total number of plans under 60% to 35, up from just 26 at Q4 2019. The total pension liability (TPL) continues to grow and stood at an estimated $5.355 trillion at the end of Q1 2020, up from $5.313 trillion at the end of Q4 2019.
To view the Milliman 100 Public Pension Funding Index, go to http://www.milliman.com/ppfi/.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
