P&I is reporting on a Milliman study of the 100 largest U.S. public pension plans in which they calculate that the aggregate funding dropped to an estimated 71.4% as of March 31, down from 73.1% at the end of 2017.

Milliman is estimating that the challenging markets lead to a collective asset value drop of 1.7% during the quarter to $3.56 trillion, while liabilities increased 0.8% to $4.99 trillion. The first quarter’s investment returns caused six public pension funds to drop below the 90% funded mark, bringing the total number of plans with funding ratios of higher than 90% to 15. Of the remaining plans analyzed, 59 had funding ratios between 60% and 90%, and 26 were below 60%.

However, since these pension systems use a return on asset assumption (ROA) to discount their plan’s liabilities (under GASB), the liability growth described above may in fact have been negative in present value $s if a true mark-to-market evaluation had been conducted. The recent rising interest rate environment would have reduced the present value of a plan’s liabilities during the first quarter as opposed to what Milliman is reporting.

Not having done the analysis, we are not in a position to determine whether the falling level of liabilities would have made up for the collective lower level of assets, but it is doubtful that the funded status would have declined 1.7% during the quarter. Wouldn’t it be better for the plan sponsor community to have a more accurate and transparent evaluation of their liabilities from which appropriate asset allocation decisions could be taken?