Equable Institute Analysis: U.S. Public Pension Funds Did Not Reverse Underperformance in Q3-4 Despite Covid-19 Market Rebound

Investment gains boost projected 2020 funded ratio to 69.4%, but funds still fail to maintain 2019 funding levels

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Dec 10, 2020, 08:53 ET

NEW YORK, Dec. 10, 2020 /PRNewswire/ -- Today, Equable Institute released the latest results of its analysis of statewide public pension funds in a mid-year update to State of Pensions 2020. Equable Institute forecasts that the aggregate funded ratio will decrease from 72.9% in 2019 to 69.4% in 2020, with a funding shortfall of $1.55 trillion – a marginal improvement on its previous estimate of 67.9%.

Preliminary investment returns for the 2020 fiscal year have near-universally come in below assumed rates of return that pension boards had set for the year, as expected. As of September 2020, the average actual return at 2.14% is well below the 7.17% that pension funds were expecting. The financial market rebound during the summer and fall drove the slight improvement in the expected degree of decline of state pension plans' funded status.

Equable Institute notes that there are important trends to watch as the U.S. continues to navigate the Covid-19 pandemic. "This year's investment underperformance means more unfunded liabilities and higher contribution rates in the coming years from school districts, cities, and state agencies," said Anthony Randazzo, Executive Director of Equable Institute. "The good news is that most pension funds did not lose money this year, after a strong rebound from lows in March. The bad news is that pension funds are doing more than just trying to make a return above 0%."

Several plans have continued the trend of lowering their assumed rates of investment return in FY2019, lowering the aggregate rate to 7.17%. Randazzo notes "If there is one legacy from the pandemic for state pension funds, it is that they should look hard at how much risk they are taking with their current investment assumptions."

In 2021, states will be faced with significantly decreased revenue and it will be important to watch which states pass on these costs to public employees.

To read the State of Pensions December 2020 Update, access interactive data visualizations, and download raw data, visit: http://www.equable.org/stateofpensions.

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.

About State of Pensions
State of Pensions is Equable Institute's annual report on the status of U.S. statewide public pensions with over $1 billion in assets put into a historical context. State and local governments face a wide range of challenges – growing, and unpredictable pension costs are some of the largest. The report and subsequent updates assess the scale and effects of these challenges within the view of the multi-decade financial and policy trends that have brought us to this point.

All data and analyses in this report for pension plans from 2001 through 2019 are based on data published by the retirement systems themselves. Equable Institute's estimates for assets and liabilities for fiscal year 2020 are based on reported actual plan returns for fiscal 2020 whenever available. Preliminary investment return data for fiscal year 2020 was not publicly available for 15 of the 154 plans included in this report. For those 15 plans we estimate their 2020 investment returns following the methodology used in our July publication of this report, using benchmarks for each plan's reported asset allocations to produce an approximate estimated return.

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SOURCE Equable Institute