With rising interest rates and poor equity returns during August 2022, public pension assets found little relief from their investment woes. The estimated funded status of the 100 largest U.S. public pension plans decreased from 77.3% as of July 31, 2022 to 75.0% as of August 31, 2022, as measured by the Milliman 100 Public Pension Funding Index (PPFI). The deficit between the estimated assets and liabilities rose during August, from $1.327 trillion at the beginning of the month to $1.467 trillion at the end of the month.
Figure 1: PPFI funded ratio
In aggregate, we estimate the PPFI plans experienced investment returns of -2.6% in August, with individual plans’ estimated returns ranging from -4.1% to -0.9%. The Milliman 100 PPFI asset value decreased from $4.527 trillion as of July 31, 2022 to $4.401 trillion as of August 31, 2022. During August, the plans lost market value of approximately $118 billion, on top of approximately net negative cash flow of $8 billion.
Figure 2: PPFI investment returns
The total pension liability (TPL) continues to grow and stood at an estimated $5.868 trillion as of August 31, 2022, up from $5.854 trillion as of July 31, 2022. Just as pension assets grow over time with investment income and shrink over time as benefits are paid, so too does the TPL grow over time with interest and shrink as benefits are paid. The TPL also grows as active members accrue pension benefits.
Figure 3: PPFI funded status
August’s market decline pushed 7 plans below the 90% funded mark as of August 31, 2022; now 19 plans still stand above this benchmark compared to 26 at the end of July 31, 2022, and even farther from the 46 at the close of 2021. Meanwhile, at the lower end of the spectrum, two plans fell below 60% funded, bringing the total number of plans under this mark to 24, up from 22 at July 31, 2022 and 18 at the close of 2021.
Figure 4: Funded ratios at August 31, 2022
About the Public Pension Funding Index
This update is an estimate based on Milliman’s annual Public Pension Funding Study and updated for market returns from June 30, 2021, to August 31, 2022. The 2021 annual study reflects adjustments made as of the end of June 30, 2021, to reflect updated publicly available asset and liability information gathered for the annual study.