We are happy to share with you the latest quarterly newsletter from Ryan ALM. As we note in our analysis, pension assets enjoyed a terrific 2019, but the advantage relative to liabilities was not nearly as great as one would think as a significant decline in longer-term interest rates propelled liability growth. In fact, a generic asset allocation inclusive of US (60%) and international equities (5%), US fixed income (30%), and cash (5%) only bested ASC 715 (formerly FAS 158) discount rates by 0.4%, while trailing PPA Spot Rates by 3.1%. Of course, a fixed discount rate of 7.5% (GASB) was easily beaten in 2019, but it isn’t a true reflection of how a public pension system’s liabilities behaved.
Furthermore, public systems with a significant funding gap would have to have dramatically outperformed liabilities to have not seen the funding deficit further increase. Unfortunately, since 2000, liability growth has dwarfed pension asset growth by 164%. Given the extended bull market run in both equities and fixed income, now is the time to consider removing some risk from traditional pension asset allocation structures. In the Ryan ALM newsletter, we address this idea and others. Please don’t hesitate to reach out to us to discuss a path forward.