Right on the heels of reaching a high-water mark for public pension assets at the end of the fourth quarter (Q4) of 2021, investment losses in Q1 2022 lowered the estimated funded status of the 100 largest U.S. public pension plans from 85.5% at the end of December 2021 to 82.7% at the end of March 2022, as measured by the Milliman 100 Public Pension Funding Index (PPFI). The funded ratio at the end of Q1 2022 is still modestly higher than at the end of Q1 2021 (79.0%) and substantially higher than at the end of Q1 2020 (66.0%). The deficit between the estimated assets and liabilities rose to $1.000 trillion at the end of March 2022, up from $833 billion at the end of December 2021.
FIGURE 1: FUNDED STATUS
In aggregate, we estimate the PPFI plans experienced investment returns of -3.36% in Q1 2022, with individual plans’ estimated returns ranging from -5.52% to 0.50%. The overall annualized return for the 12 months ending March 31, 2022, was 4.0%. The Milliman 100 PPFI asset value decreased from $4.919 trillion at the end of Q4 2021 to $4.796 trillion at the end of Q1 2022. The plans lost market value of approximately $99 billion, on top of an approximately net negative cash flow of $24 billion.
FIGURE 2: QUARTERLY INVESTMENT RETURNS
The total pension liability (TPL) continues to grow and stood at an estimated $5.796 trillion at the end of Q1 2022, up from $5.752 trillion at the end of Q4 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.
FIGURE 3: QUARTERLY FUNDED STATUS
The market decline pushed eight plans below the 90% funded mark; now 38 plans still stand above this benchmark compared to 46 at the end of Q4 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 20, up from 18 at Q4 2021.
FIGURE 4: FUNDED RATIOS AT MARCH 31, 2022
This quarterly update is an estimate based on Milliman’s annual Public Pension Funding Study (found here: https://www.milliman.com/ppfs) and updated for market returns from June 30, 2021, to March 31, 2022. The 2021 annual study reflects adjustments made as of the end of June 2021 to reflect updated publicly available asset and liability information gathered for the annual study.