Equable Institute Analysis: U.S. Public Pension Funds Did Not Recover Funded Ratio Losses in Q4

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Jan 10, 2023, 08:27 ET

2022 funded ratio declines to 77.3%; plans on track to miss investment return targets for 2023

NEW YORK, Jan. 10, 2023 /PRNewswire/ -- Today, Equable Institute released a year end update to its State of Pensions 2022 report. The analysis finds the aggregate funded ratio for U.S. state and local retirement systems declined from 83.9% in 2021 to 77.3% in 2022, based on available data through December 31^st, 2022. Equable Institute estimates that unfunded liabilities will total $1.45 Trillion for the 2022 fiscal year, representing a loss of nearly half of the gains from 2021's record investment returns.

Based on available data through December 31st, 2022, the funded ratio for US state and local pension plans will decline to 77.3% in 2022. Unfunded liabilities will increase to $1.45 trillion, after briefly falling below the $1 trillion mark in 2021.

After a year of investment volatility and record inflation, public pension plans averaged a -6.14% return on average in 2022, dramatically underperforming the 6.9% average assumed annual rate of return. Despite a year of significant losses, the funded status of state and local retirement systems remains stronger in 2022 than it was heading into the Covid-19 pandemic in 2019. However, based on Equable Institute's outlook for 2023, most pension funds are not on track to meet investment return targets.

"While the positive gains from 2021 weren't entirely wiped out in 2022, the outlook for 2023 is not strong," notes Equable executive director Anthony Randazzo. "Many major market indices were close to flat over the last two quarters of the calendar year, suggesting that most pension funds with a fiscal year ending in June are already behind the curve for 2023. Looming interest rate hikes, potential negative pressure on global commerce from Covid policy changes in China, persistent inflation, and the on-going war in Ukraine are just some of the headwinds that could contribute to another year of underperforming investments."

While aggregate numbers have trended negatively in 2022, the effect of last year's volatile market conditions has varied across plans and states. The report finds that the funded status of most states' retirement systems are fragile, with a few exceptions falling into resilient and distressed categories.

The year end update to State of Pensions 2022 also includes a ranking of the 2022 funded status of all 50 states plus Washington D.C. The analysis reveals that Washington D.C. and Washington State top the list with aggregate funded ratios of 103.4% and 102.9%, respectively. Illinois and Kentucky have the worst funded pension plans in the nation at the end of 2022.

STATES RANKED BY 2022 FUNDED RATIO
Rank	State	Funded Ratio	Unfunded Liability	Rank	State	Funded Ratio	Unfunded Liability
1	District of Columbia	103.4 %	-$323,351,808	42	Pennsylvania	65.3 %	$63,830,526,208
2	Washington	102.9 %	-$4,006,809,472	43	New Hampshire	65.1 %	$5,736,130,560
3	South Dakota	100.0 %	$0	44	Vermont	61.9 %	$3,355,864,768
4	Tennessee	99.5 %	$330,451,520	45	North Dakota	60.1 %	$4,427,750,400
5	Nebraska	96.1 %	$665,939,840	46	Mississippi	59.9 %	$20,583,639,040
6	New York	94.4 %	$37,288,583,680	47	South Carolina	57.8 %	$27,865,324,032
7	Wisconsin	93.2 %	$10,018,704,512	48	Connecticut	51.5 %	$41,852,312,448
8	Iowa	90.9 %	$4,339,720,704	49	New Jersey	50.1 %	$100,052,413,440
9	North Carolina	88.8 %	$14,425,116,672	50	Illinois	50.0 %	$209,967,487,488
10	Delaware	88.8 %	$1,367,923,712	51	Kentucky	47.3 %	$42,259,716,736
*Funded ratios are the aggregate of all statewide retirement systems and large municipally managed plans. Data is based on actual reported financial and Equable estimates based on benchmark returns for reported asset allocations.

A full ranking of all 50 states plus Washington, D.C. is available in the year end update to State of Pensions 2022.

To read the State of Pensions 2022 Year End Update, access interactive data visualizations, and download raw data, visit: http://www.equable.org/stateofpensions2022.

About Equable Institute

Equable is a bipartisan non-profit that works with public retirement system stakeholders to solve complex pension funding challenges with data-driven solutions. We exist to support public sector workers in understanding how their retirement systems can be improved, and to help state and local governments find ways to both fix threats to municipal finance stability and ensure the retirement security of all public servants.

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SOURCE Equable Institute