Public pension funding topped key threshold on stock-market gains

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An 80% funded ratio is often loosely considered a satisfactory level, even as most employers formally aim for full funding.

Public pension-plan funding topped a key benchmark for the first time in tracking history during the second quarter, buoyed by surging financial markets, according to a report released in July.

An 80% funded ratio is often loosely considered a satisfactory level for pensions sponsored by state and local governments and other municipal entities, even as most employers formally aim for full funding — that is, enough money on hand to cover all existing workers and retirees for the next 30 years.

Milliman estimates aggregate returns for the plans tracked to be 4.26% for the quarter, while the overall annualized return for the year ending June 30 was 19.95%. As the group points out, that kind of return “significantly exceeds the expected long-term earnings assumptions” for plans it covers. As previously reported, many public pension plan administrators have been reducing their assumptions for returns, believing that lower, more conservative assumptions are safer. Among state pensions, the median assumed return in 2021 is 7.20%, down about 1 percentage point since 2000.

 

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