Market recap: Fourth quarter 2021
We take a look at the S&P 500 Index, Russell 3000 Index, and others, along with the U.S. equity, non-U.S. equity, and U.S. fixed income.
While investment performance was lackluster in the third quarter (Q3) of 2021, Q4 brought new high-water marks for both assets and liabilities for public pensions. The estimated funded status of the 100 largest U.S. public pension plans increased from 83.9% at the end of September 2021 to 85.5% at the end of December 2021, as measured by the Milliman 100 Public Pension Funding Index (PPFI). The deficit between the estimated assets and liabilities shrank to $833 billion at the end of December 2021, down from $919 billion at the end of September 2021. Plans are now at the highest funding levels since the PPFI began in September 2016.
In aggregate, we estimate the PPFI plans experienced investment returns of 3.21% in Q4, with individual plans’ estimated returns ranging from 0.57% to 6.80%. The overall annualized return for the 12 months ending December 31, 2021, was 9.7%. The Milliman 100 PPFI asset value increased from $4.790 trillion at the end of Q3 2021 to a PPFI high of $4.919 trillion at the end of Q4 2021. The plans gained market value of approximately $153 billion, which was offset by approximately $24 billion flowing out, as benefits paid out exceeded contributions coming in from employers and plan members.
The total pension liability (TPL) continues to grow and stood at an estimated $5.752 trillion at the end of Q4 2021, up from $5.709 trillion at the end of Q3 2021. 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.
Funded ratios for individual plans improved across the board this quarter, with 46 plans now above the 90% funded mark; 42 plans stood above this benchmark at the end of Q3 2021. Meanwhile, at the lower end of the spectrum, three plans moved above 60% funded, bringing the total number of plans under this mark to 18, down from 21 at Q3 2021.
This quarterly update reflects adjustments made as of the end of June 2021 as part of Milliman’s annual Public Pension Funding Study, found here: https://www.milliman.com/ppfs.. The adjustments reflect updated publicly available asset and liability information gathered for the annual study.